Citigroup criticise National Savings Index Linked Certificates


Citigroup believe that the government should reduce the rates offered on the national Savings & Investments (NS&I) Index Linked Certificates as the rates are too attractive and are pulling money away from the banks.

Citigroup criticised the recent expansion of the scheme saying that the interest rate was too high and that the government should be trying to raise money by issuing more gilts. The bank believes that the certificates are an expensive way for the government to borrow money as the interest promised to investors is likely to be above the yield paid on gilts.

“While the new National Savings Index Linked Certificates appear highly popular with many investors, we believe they are a bad idea for the government: they are likely to prove a highly expensive form of funding and will hinder the important task of reducing the UK banking sector’s reliance on wholesale funding,” said Citigroup.

After being withdrawn last year NS&I reintroduced the Index Linked Certificates a few weeks ago. The popular investment pays interest equal to RPI plus 0.5% over the five year term. The fact that the interest is tax free for all savers makes them even more popular.

However, Citigroup point out that if inflation averages 3.6% over the next five years as is predicted then the interest from the Index Linked Certificates will be nearly 1% above the return paid by a gilt with the same maturity date.

This attractive rate of return not only makes the Index linked Certificates more expensive for the government but it will also pull money away from deposit accounts offered by banks and building societies.

Citigroup adds that the NS&I Index Linked Certificates are likely to appeal in the main to wealthier investors, rather than their traditional target of poorer individuals without access to mainstream banking services.

“They have, in effect, become a form of welfare for upper income savers,” said the bank.

The views expressed by Citigroup are unlikely to be welcomed by savers. NS&I Index Linked Certificates are very popular products; their return was greeted by a wave of excitement amongst savers who had been struggling to get a real return on their savings in the face of rising inflation.