T. Bailey: NS&I income bond rate increase

Philippa Gee, Head of Marketing & Communications, at T. Bailey comments: NS&I have just announced an increase in interest rates on its income bonds, effectively doubling the rate for those investing more than £25,000. This will come into effect from 20 May 2009 for Income Bond customers.

This increase is a sign of the times. Just as experts are calling the bottom of mortgage rates, investors should be relieved that in time, returns on their savings will improve. However, I would advise caution against reacting to this announcement by investing significant amounts in this plan, despite the security, accessibility and reputation NS&I commands. There is a need to be cleverer in choosing investments for income.

In our view interest rates will increase slowly, most likely taking 18-24 months for the first movements to show through, however following on from the recent budget it is our suggestion that investors ditch their reliance on specific income products. With the highest level of Income Tax pushed to 50% and Capital Gains Tax remaining at 18%, it makes sense for investors to instead pursue a growth portfolio, using regular encashment facilities to meet income requirements. Also, equities on a global scale are looking particularly attractive, especially recovery positions and I would suggest investors did not limit themselves to income orientated stocks, being predominantly UK-based.

I suggest that investors use this as an opportunity to think strategically and reduce the amount of tax they pay, effectively increasing their net income. Most investment houses can provide a regular encashment facility, as T. Bailey do, so payments can be set up automatically. Saving tax doesn't have to be a headache; in fact it can be an incredibly simply process. The key is to remember that just because an investment product doesn't have the word ‘income' in its name; it does not preclude it from being used to cover expenditure. Always seek Independent Financial Advice for help with this process.

For more information, visit tbailey.co.uk