£5,000 boost for tax-free saving

By HELEN LOVELESS, MAIL ON SUNDAY ENTERPRISE EDITOR
Updated:

 

SAVERS looking for tax-free returns have been given a boost with the news that investment limits on Government-issued savings certificates will rise by 50%.

From April 29, savers will be able to invest a maximum of £15,000 in National Savings and Investments savings certificates, up from the current limit of £10,000. This is the first increase in 13 years.

There are two types of savings certificates, index-linked and fixed interest. The return on index-linked certificates is tied to the rate of inflation. This means the rate could rise or fall over the term of the investment.

The rate on the fixed-interest savings certificate is guaranteed for the whole of the investment period. The minimum investment in both certificates is £100.

Though the investment limit has increased, Vivienne Starkey, managing director of London-based independent financial advisers Equal Partners, says the certificates are not the best option for basic-rate taxpayers. 'They could probably find far more competitive rates than these,' she says.

However, Starkey says the rates offer a 'pretty good deal' a for higher rate taxpayers.

Savers can choose from a three-year index-linked certificate, which pays 2.6%. This is equivalent to 4.31% for basic-rate taxpayers and 5.75% for higher-rate taxpayers.

The five-year index-linked certificate pays the equivalent of 4.56% (basic rate) and 6.08% (higher rate).

The returns on the fixed-rate certificates are lower, but the they are guaranteed. The two-year fixed rate certificates pay 3.05%, which is equivalent to 3.81% for basic rate taxpayers and 5.08% for higher rate taxpayers.

Savers prepared to commit themselves for five years receive 3.25%, which is equivalent to 4.06% (basic rate) and 5.42% (higher rate).

Basic-rate taxpayers can earn more - even after tax at 20% - on a number of High Street fixed-rate accounts. Birmingham Midshires pays 5.16%(4.13% after tax ) on as little as £1.Universal Building Society pays 5.15% (4.12%) on £100; Yorkshire BS pays 4.75% (3.80%) on £100 and Northern Rock pays 5.11% (4.09%) on a minimum of £500.

The rise in the investment limit is expected to be welcomed by Isa savers. From April 2006 the annual investment limit will drop from £7,000 to £5,000 for equity Isas and from £3,000 to just £1,000 for cash mini-Isas.

Contact: 0500 500 000 or visit nsandi.com. Application forms are also available from post offices.

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