UK Withdraws Tax-Free Savings Certificates

by Amanda Banks, Tax-News.com, London

22 July 2010

The UK government’s savings vehicle National Savings & Investments (NS&I) has shocked investors by withdrawing tax-free savings certificates after more than 90 years.

In a surprise move, NS&I withdrew their tax-free savings certificates from their website on Sunday evening. The fixed rate and index-linked certificates are no longer available, though those with existing investments are not affected. Interest rates on other products were cut by 0.25% in a further blow to investors – this cut will affect quarter of a million people who hold income bonds.

Index-linked certificates have traditionally been viewed as a safe and efficient means of saving, as 100% of the capital invested is guaranteed by the government. The certificates also paid an interest rate 1% above the retail price index where investors were happy to tie up their money for periods up to five years.

In a statement on NS&I’s website, Chief Executive Jane Platt said:

“NS&I has a unique position at the heart of the UK savings sector and we continue to follow a policy of acting transparently and balancing the interests of our savers, the taxpayer and the stability of the wider financial services market. While doing this we are tasked with meeting the government financing objective – called our Net Financing target – which is set for us each year by HM Treasury. This year we have agreed to broadly balance the funds coming into NS&I with the funds leaving us – in other words our Net Financing target is zero within a range of GBP2.0bn either side of this.

“We’ve seen significant amounts of money invested into these products over recent months and so we’ve taken the difficult decision to withdraw Savings Certificates from general sale and reduce the interest rates paid on our Direct Saver and Income Bonds. This is designed to ensure that we do not exceed the upper end of our Net Financing target range.

“The volume of sales over the past few months is such that our forecasts show we were at risk of exceeding the top end of the range, so we needed to take action to reduce sales.”

It is not known when the withdrawn savings certificates will again be available for new investors.

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