More than half a million savers over 65 will see their inflation-linked savings rates slashed by a third
More than half a million older savers will see the returns on their inflation-linked accounts slashed from next year.
State-backed National Savings and Investments (NS&I) announced yesterday that its popular index-linked savings certificates will track a less generous measure of inflation from May.
It is estimated the move will rake in an extra £610million for the Treasury over the next five years.
This money would otherwise have gone to the savers who hold these accounts.
State-backed National Savings and Investments (NS&I) announced yesterday that its popular index-linked savings certificates will track a less generous measure of inflation from May
The announcement came three days before the Budget, where Chancellor Philip Hammond must reveal how he will fund a £20billion boost for the NHS.
Experts called the move ‘deeply disappointing’ and ‘yet another blow’ for NS&I customers.
Some 507,000 savers, with an average age of 65, hold a total of £19.9billion in NS&I index-linked accounts.
The savings certificates are popular among savers because it means their cash is protected against rising prices. The interest earned is also tax-free.
On top of this, the accounts are risk-free because savers’ money is guaranteed by the Government.
At present, the interest rate on these accounts is linked to inflation as measured by the retail prices index, currently 3.3 per cent.
From May 1, the rate will follow the consumer price index, which is almost a third lower at 2.4 per cent.
The announcement comes three days before the Budget, where Chancellor Philip Hammond must reveal how he will fund a £20billion boost for the NHS
It means savers with £10,000 in an account will earn £240 instead of £330.
NS&I’s index-linked accounts were withdrawn from sale in 2011.
But existing savers have been allowed to roll over their cash into new accounts each year.
Even at the new, lower rate these accounts are still a far better deal than what is on offer to other savers.
At present, people have to be willing to lock their money up for three years to beat the eroding effects of inflation.
There is not a single easy-access account offering a higher rate.
NS&I said the change ‘recognises the reduced use of RPI by successive governments and is in line with NS&I’s need to balance the interests of its savers, the cost to the taxpayer and the stability of the broader financial services sector’.
But Baroness Altmann, the former pensions minister and champion for older workers, said: ‘I am deeply disappointed that NS&I has taken this unilateral decision to reduce the inflation linking for its loyal savers, who rely on NS&I as a trusted institution that they know will protect their money.
‘It is yet another blow to NS&I customers and unless the Government abandons RPI altogether, it seems wrong that retail savers who use NS&I are offered only CPI linking.’
NS&I was criticised last month after it cut the rate on its Direct Isa by 0.25 percentage points weeks after Bank of England raised interest rates by the same amount.