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Changes to NS&I Account Structures

14/08/12/A. Velasco

Posted on 14/08/12

National Savings and Investments (NS&I) have recently announced changes to several products in its fixed-rate and index-linked bond selections, including early withdrawal penalties and new flat-rate interest rates. The move to flat-rate interest rates is in line with a new government-backed push for simpler savings products that can help the average family gain confidence in savings and investment products.

One such simple savings product is the Junior ISA, which as launched by the government less than a year ago to take the place of the Child Trust Fund, which is now closed to new customers. Children and their parents now have the opportunity to save as much as £3,600 a year in an account that has simple rules: any money saved is kept in trust for the child until they turn 18, and any money earned in that time – either in interest or capital gains – is turned over to the child completely tax-free.

Changes for savers

Savers at NS&I have all of their deposits backed by the government, and the organisation says that the new changes will not reduce any interest rates. Instead, the changes bring the accounts in line with newer products on offer.

Index-linked and fixed-interest savings certificates, as well as the children’s bonus bond, will all be changed to flat interest rates. For example, the children’s bonus bond – which will now be known as the children’s bond – used to pay a 1.85 percent interest for the first five years and a 3.56 percent rate when the bond matured. This amounted to 2.5 percent AER, which is the same as the children’s bond will now pay.

Index-linked accounts will continue to have a variable interest rate that is linked to inflation as determined by the Retail Prices Index; however, a second interest rate that currently increases each year will become a flat-rate interest rate.

Affecting savers

According to the retail customer director for NS&I, John Prout, the changes won’t impact customers “until the end of an investment term. Even then we believe the changes will be of limited impact for most people, and they need to take absolutely no action before they receive a maturity letter.”

Currently, only the children’s bond is on offer from NS&I, as the government-backed institution that is seen as a savings haven by many is looking to keep its growth rate at 0% for the year.

Parents also have a range of savings opportunities from private providers, with competitive rates on Junior ISAs everywhere from the UK’s largest building society Nationwide to investment funds from The Children’s ISA.

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