Half-a-million savers are lucky enough to have nearly £20 billion between them in these government- backed certificates, which are currently the best savings deal there is.
They earn interest at a fraction above the Retail Prices Index and it’s paid tax-free. In September the RPI was 3.3%, so over the last 12 months they returned 3.31%. There is nothing to touch it in the savings world.
These certificates have not been on sale for many years, and originally lasted for a fixed term of two, three or five years. But at the end of their term, savers can roll them over into new index-linked certificates, also paying interest at RPI, with a new term of up to five years.
However, National Savings & Investments has announced that from 1 May 2019, when certificates come to the end of their term, any new certificate they are rolled into will pay interest at the Consumer Prices Index (CPI), not the RPI.
CPI is typically about one percentage point lower than RPI – in September it was 2.4% compared with RPI of 3.3%. The change will not affect certificates that people currently hold, which will pay out until the end of their term at RPI. But any that come to the end of their term on 1 May 2019 or later will only be rolled over into certificates that earn interest at the rate of CPI inflation.
The certificates were last on sale between May and September 2011 and came to an end in 2016, five years after they were bought.
They could then be rolled over for a further term, so people who chose three or five years will find their certificates run out in 2019 or 2021. If they roll them over again, they will only pay interest at CPI.
Someone who bought the maximum £15,000 will see the interest earned cut by around £190 a year, saving the Government £610m over five years. Interest paid tax-free at CPI is still a great rate.
But there may be better alternatives on the market for people whose interest is covered by the £1,000 tax-free savings allowance.