Many of the UK’s 26 million National Savings & Investments (NS&I) savers, will now have to contend with interest penalties, if they want access their savings early, after changes announced last week.
NS&I is the UK’s most popular savings provider, partly because money held in their accounts is 100% guaranteed, without limit, by HM Treasury.
However, recently announced changes, will see customers having to pay interest penalties should they want to withdraw funds from fixed term accounts early.
NS&I fixed term investments
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The changes only affect NS&I fixed term investments, where the account or investment has a specific term.
Included within this category are the hugely popular Index Linked Certificates as well as Fixed Interest Savings Certificates, Guaranteed Growth Bonds, Guaranteed Income Bonds and Children’s Bonus Bonds.
What are the changes?
The changes are wide ranging and in some instances will make NS&I accounts look less attractive to savers, as well as restricting options for savers under the age of 16.
However, the fact that 100% of all capital held with NS&I is still protected without limit, will continue to make them an attractive option for many.
The key change is the introduction of a penalty for accessing Fixed Term Accounts. NS&I said: “Penalties for early withdrawal are already standard practice with most banks and building societies, and some of our investments already have them in place. So we’re now making all our fixed term investments consistent.”
In addition to the interest penalty for early encashment, NS&I are also introducing more online and telephone functionality to help people keep track of their savings.
Finally the Fixed Interest Savings Certificates and Index Linked Certificates, when they return to sale, will no longer be available for savers under the age of 16, which will restrict the savings options for minors.
Furthermore, Children’s Bonus Bonds will now mature earlier than was previously the case, and won’t be able to be held until age 21.
Who will the changes affect?
The changes will affect two main groups:
- Savers who have existing NS&I products which mature after 20th September 2012 and who decide to ‘rollover’ the savings into a new product
- New savers who invest in NS&I products after 20th September 2012
NS&I will write to all affected savers before 20th September to inform them of the changes.
Savers who buy Premium Bonds, Income Bonds or any savings accounts will not be affected.
The key changes in more detail:
Fixed Interest Savings Certificates
Penalty. Penalty of 90 days interest on the amount cashed in.
Minimum balance. £100 must be left in the account at all times.
Interest rate. The rate of interest will now stay the same throughout the term; previously it had started low and risen during the term of the account.
Age limits. Children under the age of 16 will no longer be able to buy or renew the Fixed Interest Savings Certificates, although existing investments can be held until the end of the term.
Index Linked Certificates
Penalty. Penalty of 90 days interest and loss of the Index Linking interest on the whole balance for the year money was withdrawn.
Minimum balance. £100 must be left in the certificates if they are to remain open.
Interest rate. The rate of interest will now stay the same throughout the term; previously it had started low and risen during the term of the account.
Age limits. Children under the age of 16 will no longer be able to buy or renew the Fixed Interest Savings Certificates, although existing investments can be held until the end of the term.
Children’s Bonus Bonds
Penalty. Penalty of 90 days interest on the amount cashed in.
Interest rate. The Children’s Bonus Bond will now pay a single rate of interest throughout the term; previously the interest rate was lower with a bonus added at maturity. The account will therefore now be known as Children’s Bonds rather than Children’s Bonus Bonds.
Age limits. The Children’s Bonds will no longer be able to be held until the age of 21, they will mature at the first five year anniversary after a child has reached the age of 16. Furthermore, only parents, guardians and grandparents will be able to open Children’s Bonds, other relations, for example Aunts and Uncles, will not be able to open this type of account on behalf of children.
Guaranteed Growth Bonds & Guaranteed Income Bonds
Limits. The maximum which can now be held in the Guaranteed Growth Bonds has been increased to £1,000,000.
Next steps
NS&I will write out in September to savers affected by these changes.
However, if you are concerned and would like your questions answered before then, please do not hesitate to contact us.
Our team of Independent Financial Advisers in Nottingham are experienced in making savings and investments work harder for you and can be contacted in 0115 933 8433, alternatively enquire online or email info@investmentsense.co.uk
