Index link your savings

With inflation now running at a high level and the stock market in turmoil, there is only one place that offers savers real risk-free returns without paying a penny in tax.

National Savings & Investments’ index-linked savings certificates continue to be hugely popular – and it’s not hard to see why.

Not only have they delivered better returns than any high street bank or building society account; they have also outperformed many riskier investment accounts.

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For savers the real selling point is that their money keeps its purchasing power. The same can’t be said of most high street savings accounts, which that are losing money in real terms once tax and inflation have been taken into account.

Savers can invest up to £15,000 in these certificates, and will get a return equivalent to RPI (currently 5pc) plus 0.5pc over the five-year term. Not surprisingly, money has poured into these “linkers” – a total of £6.5bn was invested in just two months after NS & I reissued the savings plans earlier this year.

If you had invested the full £15,000 in NS & I linkers 10 years ago are now sitting on a nest egg worth £23,746 – an annualised return of 4.7pc. This is despite the fact that inflation has been low for much of this period. Over the same period, the average corporate bond fund has produced annual returns of just 3.7pc, while the average equity income fund has returned 3.6pc – both of which could be taxed if held outside an Isa or pension.

Savers should also ensure that they had some money in an instant-access account for emergencies, but savings certificates should then be their next port of call. Investing in equities can be a good long-term bet against inflation, but, as we’ve seen recently, shares can be volatile and you need to be prepared to shoulder this risk.

Although there have been very few new issues of savings certificates in the past two years, NS & I has in the past launched two or three issues a year. Those who have stuck with these savings products can now have sizeable sums protected against inflation.

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