National Savings withdraws its products

You might have thought when the government needs to borrow £150 billion National Savings would be after your money. Yet if you go onto their site this morning it tells you they are not currently selling either Index linked or fixed rate 2 or 5 year bonds on their usual tax free basis.

It can’t be they do not want the money. There must be some rethink going on. Apparently Index linked certificates have proved very popular. When bank and other savings deposit rates are so low many have preferred the 1% plus inflation that National Savings was offering, to give them more than 6% a year tax free at the peak of the inflation the monetary authorities have unleashed.

Savers have been getting a rotten deal generally from this era of low official interest rates. Cash on short term deposit has yielded very little, and even medium term savings plans have been on the mean side. Will National Savings come back into the market at lower rates, to give the private sector more chance to compete around a base rate of 0.5%? Or will they come back in with a better offer themselves, recognising that savings rates generally have been too low?

Why didn’t they have the new products ready for the withdrawal of the old ones?

The banks have to think how they are going to respond. They too need deposit money in bigger quantties than they currently enjoy. At a time when it is fashionable to say banks should lend what they can collect by way of deposits, attention shifts to how good they are at attracting them.

Savers are fed up with being mugged. The last couple of years has produced negative returns on many conventional savings products as prices have risen sharply. As always I am not offering investment advice on this site nor recommending particular products.

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35 Comments

  1. Nick
    Posted July 20, 2010 at 9:04 am | Permalink

    Or they are going to try the Weimar republic approach. That doesn't work if people have hedged against it.

  2. Alan Jutson
    Posted July 20, 2010 at 9:04 am | Permalink

    Agree with your comments John.

    Savers have been screwed.

    Only Mortgage (certain type) borrowers have gained.

    Business are being screwed with high rates of interest on any borrowings required.

    It also raises another point.
    For those who perhaps are just starting work, or in a position to start saving, they look at the rates and say, what is the point.

    Nil return or a little better (below inflation) does not encourage any form of savings culture in the population as a whole..

  3. Tim Carpenter
    Posted July 20, 2010 at 9:13 am | Permalink

    To me this shouts one thing – interest rate rise predictions.

    If NS&I introduces new "attractive" fixed rate deals, then that might be further proof of their long term view.

    • Alan Jutson
      Posted July 21, 2010 at 4:16 pm | Permalink

      Tim

      It may be worse, they may launch a lower interest product given that the last one was oversubscribed.

  4. common sense
    Posted July 20, 2010 at 9:45 am | Permalink

    The government does not need to borrow a single penny,they could and should print it interest free.

    • Mark
      Posted July 20, 2010 at 11:37 am | Permalink

      Regimes that debase currency foment revolution against them. Perhaps that is your hope?

    • Paul
      Posted July 20, 2010 at 1:16 pm | Permalink

      I was expecting a ;o) at the end of your post.

  5. Brian Tomkinson
    Posted July 20, 2010 at 10:20 am | Permalink

    I'm sure I heard the BBC report yesterday that the government didn't need all the money it was receiving from these savings products. Like you I find that hard to believe. I took it as a sign that they expect inflation to continue at a high level and don't want to pay out the corresponding interest on those products. One thing is for sure no one is supporting savers – the banks and building societies aren't and now the government, in what was just a very limited way, isn't. We never hear Cameron talk about savers all he and Osborne mention is that we don't want high interest rates and mortgages. Some of us are paying a very heavy price for this.

  6. Tony_E
    Posted July 20, 2010 at 10:26 am | Permalink

    It seems like NS&I might have been leant on a little to prevent them from 'distorting' the market. That they were good for savers in a poor market is beyond dispute, but whether they have a position which is advantageous to the point of distorting the markets is arguable.

    However, now the banks will have less competition for the meagre rates that they are offering, and with the Bof E keeping rates artificially low, (mainly to prevent repossessions and a housing cost realignment which is dreadfully overdue), then savers are in for more of the same: watching their savings dwindle as the pound slowly finds a more realistic value due to printing excesses and inflation takes hold.

    • Henry
      Posted July 21, 2010 at 10:36 am | Permalink

      This is an extract from Which? It might be of interest (no pun intended) to some.
      'Both Fixed Interest Savings Certificates and Index-linked Savings Certificates (also known as Inflation-Beating Savings) have been withdrawn from general sale. The change does not affect existing Savings Certificate holders, who will continue to receive the same deal as they signed up for'.
      See the link http://www.which.co.uk/news/2010/07/nsandi-withdr

  7. Paul Round
    Posted July 20, 2010 at 10:42 am | Permalink

    The withdrawal of inflation- linked bonds has been a hammer blow to savers.What is so unfair about this is that inflation was unleashed by the previous government and this one now appears to be happy to inflate its way out of the debt inherited by its predecessor at the expense of the aforesaid savers .This is hardly in accord with the current government's avowed wish to see more people save more of their own money.It is likely to add to the pre-VAT increase spending splurge, or is that the intention? Either way, it is not good policy to hack off your supporters in such a cavalier way

  8. Angry saver
    Posted July 20, 2010 at 11:05 am | Permalink

    John, savers are being legally mugged and need to look for redress.

    How about a mass withdrawal by savers from all their accounts and a look to investing in overseas banks or anywhere but here in the UK?

    Deposit account returns are disgraceful how about pegging them to 1% below the interbank lending rate.

    No one could recommend their children to save anything only to let the government devalue it by inflation.

    How about the constitutional right for savers to index their capital against inflation before any liability to tax from interest in order to avoid what is actually theft by elected government.

    Why should we continue to put up with this

    Your comments please

    • manicbeancounter
      Posted July 20, 2010 at 10:01 pm | Permalink

      For the government to step in to apply arbitary rules is quite silly. It would simply work against Bank of England policy. That is to keep interest rates low for borrowers. The biggest borrower by far is HM Government.

      • Mark
        Posted July 21, 2010 at 3:45 pm | Permalink

        Not sure that's right. The BoE showed that UK banks need to borrow nearly £800bn by end 2012 just to refinance expiring loans. Unless that borrowing winds up on government books, their borrowing will be substantially smaller than this over the same period, allowing for re-financing of maturing gilts and any deficit financing required. The banks will need to borrow from abroad if they aren't going to borrow from government.

  9. Simon
    Posted July 20, 2010 at 11:19 am | Permalink

    I don't know why I bothered to stint myself the last 10 years doing without holidays so I could overpay on my mortgage .

    Surely once the banks have been refinanced out of savers pockets by the blatently criminal margins between loan and deposit interest rates there will be no need to continue robbing savers .

    Pensioners are having to deplete their savings more quickly than they ought which is going to reduce their future income .

    Do cossetted MP's in Westminster appreciate that this sort of smash and grab from savers can only continue for a very limited period ?

  10. John
    Posted July 20, 2010 at 11:47 am | Permalink

    Now that the new Government has pulled some of the most popular tax free savings schemes under NS&I, what incentive do the banks and building societies have to improve thier savings schemes?

    It seems to me that the Government has if anything strengthened the power of the cabal with this move. Many people will now feel they have nowhere to go savings wise, especially since most of the banks seem to regard ISAs as a way to reward customers with pitiful rates in the knowledge that the tax-free part will pick up the slack.

    If anything the Government should be promoting NS&I even harder in the current climate. This is a bad decision

  11. nonny mouse
    Posted July 20, 2010 at 12:29 pm | Permalink

    Before we criticise can we get a better view of the big picture:
    – Are there any figures for how much was being saved in recent years with National Savings?
    – Are here any figures for how much it cost to administer vs. the cost to borrow from the bond market?

    National Savings is not a vehicle for subsidising savers. It is a vehicle for the government to borrowi money cheaply. A lot has changed since it was formed in 1861 and maybe it does not fit into the modern world without being reformed.

    On another note, why does it use Indian call centers? Saving money on administration is one thing, but paying unemployment benefit whilst sending jobs abroad seems to be a false economy.

  12. jeff
    Posted July 20, 2010 at 12:34 pm | Permalink

    I've had about enough of this. I cannot afford for my savings to go on hemorrhaging value at this rate each year. Time to invest outside of the UK I think. I know there is currency risk, but over time, I think it is more likely to work in my favor. I don't think Sterling is likely to be a strong currency. I do think the government regard savings as a resource to be plundered.

  13. Steve
    Posted July 20, 2010 at 12:51 pm | Permalink

    I am not sure, but I assume that this was purely a 100% government political decision, not one based by NSI on any commercial considerations. Is that right? If so, then why are the Conservatives, who should be supportive of savers and those who have endeavoured to take responsibility for their own finances, ratcheting up the screws so nastily? What kind of a party is now in government, I ask myself? Deposit account rates at less than 1% with CSI/RPI consistently in the 3%-5% range was bad enough, but it seems that the ConDems are determined to steal every last penny that we have to pay for Labour's excesses, regardless of how innocent one was in that disgraceful fiasco. I get a clear message from this: the ConDems will inflate their way out of Labour's debt mountain, thereby beggaring the life savings of many, and wrecking even further the pension prospects of those who are still saving for one. The government professes to want to foster a savings culture, and yet how does this contribute to that aim? Nobody in their right mind would put a single penny away in this environment. Much better to spend it today than watch it rapidly erode in any savings account. Does David Cameron understand what is going on? Many commentators have said that he is not really a Conservative, but a sort of hybrid slightly-right-of-centre Green liberal. Sounds like a Marxist solution to the country's debt problems, is there something Mr. Cameron isn't admitting to?

    Reply: Probably an imagined conspiracy too far. NS and I cancelled fixed rate as well as RPI products because they have already taken in more money than target, because their rates were so much more attractive than anyone else's.

  14. A.Sedgwick
    Posted July 20, 2010 at 1:12 pm | Permalink

    Remember Hague/Portillo in 2001 election – tax free interest for standard rate tax savers.
    Remember Cameron/Osborne ditto before 2010.

    This with the abolition of pension contribution tax relief for higher tax payers and 100% access to the funds on retirement for non final salary pensioners would be fairer for the vast majority of savers and private pension contributors.

    • Simon
      Posted July 21, 2010 at 8:14 pm | Permalink

      Sedgwick , I'm not sure I'm understanding your proposal completely , it sounds like double taxation to me . Have I got it right ?

      – a higher rate tax-payer who gets a benefits defined pension would only pay tax when they draw their pension .

      – a higher rate tax-payer who contributes to a defined contributions pension would be penalised by paying tax on the way in when they contribute .

      Does the higher rate tax payer then have to pay tax again if they choose to access take a lump sum of 100% of their fund ?

      I agree that having to put 75% of your fund into an annuity is far too inflexible , especially given that it may not even keep up with inflation . Hardly an incentive to encouraging people to save for old age .

      Surely it would be simpler to keep the current system of paying tax only when taking the money out but allowing people instant access to the 75% of their fund which cannot be taken as a tax free lump sum ?

      Ultimately I think a proper fully funded state pension is the answer for a primary (non occupational,not private) pension .

  15. Javelin
    Posted July 20, 2010 at 1:50 pm | Permalink

    HSBC don't even offer vanilla savings accounts – as I found out last month. Now NS had done the same. You ask what it means?

    Simple, there's no profit is savings – only debt !!

    What kind of economy is it where debt/spending is encouraged and savings/investment is not?

    Our low interest economy. That's what kind of economy. We live in a short termist economy where we clearly think there is MORE than enough investment.

    Are very low interest rates beneficial? No they are not. We are currently economic free-wheeling. Banks aren't looking for investments they are being cautious with what they have.

    It's widely believed small businesses lead a recovery. But investment funding must fuel them.

    Interest Rates must rise. We must dip our toes back into the water of growth.

  16. billyb
    Posted July 20, 2010 at 1:54 pm | Permalink

    The government is sending the wrong message – saving bad, borrowing and spending good.

    Is that what you want?

  17. Brett Hayter
    Posted July 20, 2010 at 2:04 pm | Permalink

    I agree that increasing the flow of credit would be positive for the economy, however it is widely reported that companies are "hoarding cash", and that uncertainty is the barrier to investment rather than the availability of credit. Banks remain reluctant to extend credit because they too face this uncertainty.

    Goverment needs to make investment a more attractive proposition, reducing regulatory and tax uncertainty.

  18. JimF
    Posted July 20, 2010 at 3:01 pm | Permalink

    I was in any case sceptical about these RPi-linked Certs for the medium-long because the government can always tilt the RPI figures onto products which aren't rising as fast as "everyday" consumables. The competition to our low rates is foreign currencies and commodities. That weak Euro might not last as long as people think!

  19. HJBbradders
    Posted July 20, 2010 at 4:18 pm | Permalink

    This is disgraceful and suggests that the government anticipates higher interest rates round the corner. You don't need 20/20 vision for that with an increase in VAT on the horizon.
    I am getting heartily sick of hearing on the BBC about the plight of people with mortgages. When is someone going to bother about savers? What about retired people who have saved a bit and rely on the interest from these savings to make ends meet? Folks in work can still replenish their savings when times improve, but not the retired.
    Why is it a good thing if house prices rise, but bad if the cost of, for example food, increases?
    I am beginning to get a little disillusioned with this government.

  20. grahams
    Posted July 20, 2010 at 4:21 pm | Permalink

    Whatever the pretence of NS&I independence, it is clear that the Treasury has ruled that index-linked savings will be will be a far too costly way to finance the deficit. This rather gives the game away on future inflation, if that was not obvious already. Investors will soon follow the speculators into real assets, from gold to cocoa (but maybe mainly real property) That starves business of funds whether from banks or stock market equity. And only banks financed by retail deposits can be really "safe".

  21. StevenL
    Posted July 20, 2010 at 4:50 pm | Permalink

    Have a look at fixedincomeinvestor.co.uk or bondscape and see what banks are really paying to borrow money without the state guarantee (either from retail deposits or CGS-backed bonds).

    Without the government pinning interest rates to the floor I'd imagine interest rates for savers and borrowers would be a couple of per cent higher. Mind you, Mr Cameron and Mr Osborne did go into the election saying they would do what it takes to keep interest rates as low as possible – so if you voted for him I don't see that you can really complain about low interest rates.

    The irony of a load of tories moaning that the government aren't protecting them enough from the risk of having their savings devalued by a tory government that said it would do just that is quite something. When you you people realise that savers don't matter, the only people that matter are people with loads of debt (like banks, governments, swing voting homeowners etc).

  22. Mark
    Posted July 20, 2010 at 5:06 pm | Permalink

    I suppose offering no new NS&I bonds is less dramatic than confiscating deposits entirely to fund the Big Society Bank. After all CGT at only 28% must look like a bargain alongside 100% confiscation. It's not as if the banks weren't lending money against the deposits involved.

  23. manicbeancounter
    Posted July 20, 2010 at 6:32 pm | Permalink

    We should look at the problem of interest rates in the round – from the aspect of both borrowers and savers, with the banks the intermediaries.
    Low interest rates have resulted in a reversal of the decline in the housing market. If interest rates rise significantly, then the housing market will resume its decline. The long term average house prices are about 4 times average earnings. The bottom of the market in early 2009 was above this level.
    Savers are discouraged by low rates. The principle type of savers are not those building up balances in deposit accounts, but those saving for retirement. Lower returns mean higher contributions to reach a given level of retirement income.
    The other factor to consider is the margins between savings and borrowings. After an unusual period where it was possible to borrow on a mortgage for less than could be earned on a high interest savings account, margins are now quite large as banks try to improve their margins.

    A rise in interest rates would encourage savers. Some would be dealying house purchases, as borrowing becomes too expensive. Others would just top up their pensions.

  24. Demetrius
    Posted July 20, 2010 at 6:34 pm | Permalink

    The only safe investment today is the Euromillions Lottery. At least a handful of the investors go quite well.

  25. M.A.N.
    Posted July 20, 2010 at 10:23 pm | Permalink

    The people that voted Cameron in will NEVER, and I mean NEVER vote for the tories again. That is that. End game. If you cant save, whats the point of bettering yourself?. Why start a business?. Why even have a society,? Lets all go on benefits.

  26. anoneumouse
    Posted July 20, 2010 at 11:06 pm | Permalink

    Back in 2007 I withdrew my life saving from the bank and stuffed the notes underneath my mattress. It's a bit of a lumpy sleep…….but hey…the peace of mind has been great.

    Dealing in hard cash has returned a better value for money, no TAX no VAT who needs the current interest rates.

    Big Society….long live the black economy.

  27. English Pensioner
    Posted July 21, 2010 at 9:57 am | Permalink

    I had an investment in Premium Bonds, but decided that I was loosing my capital due to inflation and managed to transfer it to index linked certificates just in time.
    My capital will now be protected, and £20,000 at 1% interest it will bring me in £200 each year. I propose to put this on the lottery throughout the year, statistically I should win a small prize which is likely to be more than on premium bonds, and there is a remote chance of winning a far bigger one!
    Not the sort of advice one would get from a professional advisor, but I'll certainly be no worse off than I was!

  28. Kevin Peat
    Posted July 21, 2010 at 2:23 pm | Permalink

    IMHO

    It seems to me that the path towards low interest started when Clinton was still in office – the sub-prime lending market was born. Then we had the dotcom bust which should have precipitated a recession but which, instead, was mitigated when the US decided to keep interest rates low in order to ride out the Twin Towers attrocity. Thereafter followed a real estate boom like no other. The value of Western banks were distorted by the notional value of Western property – in other words complete fluff.

    Who'd have thunk it ? Those two planes slamming into the World Trade Center preceding the biggest economic boom in history !

    I believe interest rates are being kept low because banks and government are now in thrall to property. Their survival (political and economic) depend entirely on people believing that their houses are worth kazillions.

    Is this really the best defence we have against usurpation by the East ?

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    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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