NS&I axe Savings Certificates and cut rates – a blow for savers

Andrew Hagger of Moneynet.co.uk comments on the product changes announced by NS&I today.

With savings rates at painfully low levels, it's no surprise that savers have been attracted to potentially higher returns in the form of index linked savings certificates.

No one knows what will happen to RPI in the future, so it's not possible to say whether Index linked Savings Certificates will turn out to be a good investment, however at least you knew that you'd always maintain the spending power of your savings.

It's another door slammed in the face of savers who now have fewer options as they desperately seek a decent return on their nest egg.

Although it's bad news for Joe Public, banks and building societies will be rubbing their hands to see these products withdrawn and rates cut as they'll benefit in the form of a bigger slice of savings business.

It's not just been about rates for NS&I savers, it's the additional peace of mind that they like. With 100% safety of their cash (courtesy of HM Treasury) there's no £50,000 FSCS limit to worry about, so even if rates are less than those on the high street, the ‘safe haven' of NS&I has proved a magnet, particularly for savers with large sums at their disposal.

When NS&I launched a 1 year bond in October 2009 paying 3.95% (a full 0.25% higher than anyone else at the time) a wall of cash flowed into the NS&I coffers even though the product was pulled after just 24 days. At the time this outraged the banks and building societies who saw a massive outflow of funds in what they described as a distortion of the market.

By removing these certificates from sale and cutting rates on remaining accounts NS&I will enable the banks to improve their balance sheets, but there's nothing positive in today's announcement for the man on the street.