Half a million savers will receive lower returns next year when National Savings & Investments (NS&I) makes a change to its index-linked savings bonds.
From 1 May 2019, the returns offered on NS&I savings certificates will be based on the Consumer Prices Index (CPI) and not the Retail Prices Index (RPI). Currently, NS&I savings bonds pay the equivalent of the RPI rate, plus 0.01 per cent.
This seemingly small change is likely to mean that the 500,000 savers who currently hold index-linked savings products will receive lower returns on their money, as the CPI has historically tracked lower than the RPI.
In fact, since the index-linked bonds were first introduced in January 2011, the CPI has been 0.79 per cent lower than the RPI, on average.
In October 2018, the RPI was 3.3 per cent, meaning that NS&I savings bond holders would have earned 3.31 per cent in interest. In the same month, the CPI was 2.4 per cent.
The switch follows a series of money-saving in incentives by the government-owned NS&I, which has been under pressure to meet strict financial targets by 2019. Earlier this year, NS&I cut the maximum investment limit on its guaranteed growth bonds from £1m to just £10,000. It has also cut the rates on its popular Direct ISA from one per cent AER to 0.75 per cent AER.
It is believed that the switch from RPI to CPI will save the taxpayer more than £610m over the next five years.
“Index-linked savings certificates are inflation beating and tax-free,” said Ian Ackerley, NS&I chief executive. “Savers will still have the peace of mind that their money is protected.
“Index-linked savings certificates holders will continue to benefit from a unique and attractive product, which remains an important part of our product range.”
John Glen, economic secretary to the Treasury, said: “We know that savers who hold these products really value the inflation protection they give. The transition to CPI for new investments over the next five years retains this, while balancing the needs of the taxpayer.”