What are NS&I savings? Learn all about government backed National Savings and Investment accounts
National Savings and Investment, or NS&I, is a national form of saving account, designed to give savers a secure space to store their money that is backed by the government.
NS&I savings, unlike bank savings, have no limit on the amount protected by the government. What’s more National Savings and Investment offer some products like ISAs and children’s bonds that are tax-free.
National Savings and Investment (NS&I)
NS&I is government backed, so 100% of all the savings you put in is secure. This is contrary to private banks that are only guaranteed up to a maximum of £85,000 per organisation should the bank go bust.
That means that if you had and your partner had a joint account with £100,000 in a traditional bank or building society that went out of business, you could lose up to £15,000. If you had your savings in a National Savings and Investment account you wouldn’t lose any of it.
There are a range of products offered by NS&I, from EASA, cash ISAs, premium bonds, fixed-rate bonds, children’s bonds, capital bonds, pensioners bonds, income bonds, investments, and standard NS&I accounts.
NS&I Cash ISA
Unlike a standard NS&I account, the National Savings and Investment cash mini ISA is tax-free. That means you don’t need to tell the taxman anything about your earnings in an ISA account.
Like all ISAs the amount of money you can put in your cash ISA is capped. Although this limit changes frequently, the current cash limit you can put in is £15,000 (rising to £15,240 in the 2015/2016 tax year). You can top this up and put in more each limit, a process known as ‘topping up’ your ISA annually.
Like ISAs NS&I savings certificates are tax free, but there are also limited in supply and may not always be available.
Like most savings accounts the savings certificates offered by National Savings and Investments can be index-linked or fixed. That means the rate you pay is either fixed at a specific level, or tied directly to a fixed rate plus inflation.
Index-linked accounts are the safest way of saving money as you never have to worry about losing out in comparison to inflation, but they do often require a longer-term commitment, typically of a few years. Fixed savings certificates similarly require you to fix your savings for a longer period of time.
NS&I Children’s Bonds
National Savings and Investment children’s bonds are a popular choice for savers looking to put some money away for their children. Like savings certificates and ISAs, children’s bonds are tax-free.
Children’s bonds are longer-term options and are sold in sets known as ‘issues’. Each issue in turn has a fixed rate of interest that is paid at regular intervals.
Bonds are fixed for five-year periods at the end of which you’re given the option to withdraw all your money or roll on for a further five years.
NS&I children’s bonds can only be held if the child is under 16 years of age.
National Savings Premium Bonds
Premium bonds are the final tax-free form of savings available under NS&I. Premium bonds allow you to invest up to £50,000 but the way they reward you for your savings is more like playing the lottery than traditional savings.
Premium bonds don’t pay you any traditional interest but instead enter you into a prize draw. These prize draws occur monthly and the typical prize is £50, but you could win up to £1 million.
However, while that may sound great there is no guarantee of winning anything, and as there is no typical interest paid the longer your money stays in a premium bond the more it loses to inflation, unlike an index-linked account.
Guaranteed and Income Bonds
Guaranteed bonds from NS&I give you a fixed return. The benefit of guaranteed bonds is that you know exactly how much interest you’ll be receiving, but the disadvantage is that you’ll be taxed.
The rate you are taxed depends on your overall level of income, but will be either 20% or 40% for higher rate taxpayers.
To learn more go to www.nsandi.com.
Alternatives to NS&I
Whilst the main attraction of NS&I is the fact that your savings are protected it’s worth remembering that savings in traditional banks, building societies and credit unions are also covered, just not to the same extent.
The Financial Services Compensation Scheme (FSCS) provides cover of £85,000 per financial institution, so you only really need to worry about coverage if you have higher levels of savings.
Even then, spreading your savings between different financial institutions will increase your level of coverage (and your paperwork unfortunately).
The other main benefit to NS&I savings is that they are tax-free, and particularly for those looking to set up a children’s bond scheme they are relatively easy to set up.
However traditional ISAs are also tax free and the only limit is the annual cap (£20,000 for 2017/18). If you are willing to put less than that in per year most ISAs will offer competitive rates in comparison to NS&I schemes, as well as allowing you better access to your money in the event of an emergency.
It’s also worth noting you now pay no tax on the first £1,000 (if you’re in the 20% bracket) or £500 (if you’re in the 40% tax bracket) of interest you earn per year, from any savings or current account.