Alan Cook, NS&I’s chief executive, said: “Our rates are generally consistent but are rarely the best on the market. People choose NS&I because they know their money is safe.”
Savers ploughed £5.2 billion into NS&I schemes, excluding premium bonds, in the 12 months to April 2004. But they can usually get a higher return from a bank or building society.
Anna Bowes of Chase de Vere, an adviser, said: “NS&I plays to its strengths — and there is no doubt it is a safe place to put your money. But is it really much safer than say, Halifax or Nationwide, especially now there is a high level of investor protection?” The NS&I cash Isa, for example, pays 4.45%, almost a full percentage point less than the cash Isa from Abbey at 5.4%.
NS&I’s Easy Access Savings account, which replaced the Ordinary account earlier this year, pays 4.55% on balances of £50,000. But if you invest less than £1,000, the rate is 2%. A saver with £25,000 could earn £175 more a year in Sainsbury’s Bank’s Instant Access account, which pays 5% on £1.
More than 12.5m NS&I savers are even worse off because their money is in the obselete Ordinary account, which pays just 1.1% on up to £500 and 1.2% on bigger balances.
Advertisement
The 30-day notice NS&I Investment Account is also poor value. It pays 3.25% to 4.15% on between £20 and £50,000. A saver with £25,000 could earn £237.50 more gross interest a year with Chelsea building society, which pays 4.75% on balances of £1,000 or more.
NS&I’s Tessa-only Isa, Children’s Bonus Bonds, Fixed-Rate Savings Bonds and Pensioners Bonds can all be beaten by high-street rivals.
Advisers also warn of the pitfalls of NS&I’s guaranteed equity bonds (Gebs). Savers invested more than £200m in these bonds in 2003-4 — they were its most popular scheme after premium bonds.
The returns on Gebs are linked to the stock market, but investors are guaranteed to get at least their capital back. The current issue, nine, pays 105% of any FTSE 100 growth over the five-year term, which starts on November 10. Justin Modray of Bestinvest, an adviser, said: “The gains on some guaranteed bonds are subject to capital-gains tax, but investors in NS&I Gebs pay income tax, which can make them a poor deal, particularly for higher-rate payers. The other drawback is that investors do not earn dividends on the underlying shares.”
The only product that experts sometimes recommend is index-linked savings certificates. The rate is equivalent to inflation — currently 3.2% — plus a further 1.1% over three years or 1.25% over five years. Returns are also paid tax-free. A higher-rate taxpayer with a five-year account would therefore receive the equivalent of 7.41% this month, while a three-year saver would get 7.17%. Basic-rate payers would earn 5.56% and 5.38%.
Advertisement
Bowes said: “Index-linked savings certificates are great for higher-rate taxpayers but basic-rate payers could get better rates over three and five years.”