Indexed linked bonds removed from market

National Savings and Investments (NS&I) have confirmed that they have taken their indexlinked bonds savings product off the market.

Index-linked bonds are a popular product as they provide some protection against inflation for savers. In July 2010, these bonds were removed from the market but were then re-introduced earlier this year.

There was approximately 500,000 sales of these bonds when they were made available again.

However, government rules exist which prevent the NS&I from dominating the savings market and as such, the popular index-linked bonds were only able to be available for a short period of time.

The NS&I index-linked bond allows savers to invest up to £15,000 in a five year bond. The bondis tied to the Retail Price Index (RPI) and pays 0.5% on top, which helps to protect savings from inflation.

When the index-linked bond was re-introduced to the market earlier this year, inflation was as 5.3% and the bond offered a return of 5.8%. No other bonds were able to match the rate, making it a popular product in the current economic climate, particularly amongst people approaching retirement who were beginning to see their savings become eroded by the level of inflation.

In July 2010, the bonds had to be removed from the market as the NS&I saw excessive demand for the savings product. However, in the March budget for this year, the chancellor of the exchequer George Osbourne allowed a £2 billion increase to the net financing target for the NS&I. This allowed the NS&I to re-introduce the product.

The NS&I needed to see a £14 billion inflow of savings from its customers, in order to meet the new target set by the chancellor.

Jane Platt, the chief executive at NS&I, said: "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 net financing range, so we needed to take action to reduce sales."

NS&I also confirmed that from the end of Tuesday 6th September, they have stopped accepting new sales of the bonds, although they would continue to accept postal applications until the end of Wednesday 7th September. Any postal applications received after 7th September would be returned to the customer.

The NS&I fixed-interest savings certificates have also been taken off the market. These saving certificates are backed by the HM Treasury and as such can offer a guaranteed rate of interest on a lump sum investment, over set terms. They are tax-free and the Treasury backing meant that they are 100% secure.

Initially the security that the government backing lent to these NS&I products saw a rush from concerned savers to buy them. However, the government has since confirmed that if a bank or building society went bust, people would lose their savings. This has helped to slow the initial demand for the NS&I secure savings products.

 

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Retirement Solutions (UK) Ltd are independent financial advisers that specialise in financial products for the over 50s. Visit the web site at www.retirementsolutions.co.uk

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