Find yourself an inflation-beating account

The savings accounts, which paid a tax-free return of 0.5 percentage points above the Retail Prices Index, running at 5.2% in August, had been on sale for almost four months.

NS&I withdraws inflation-linked savings accounts

There had been almost half a million sales of the index-linked certificates during that time. Jane Platt, chief executive of NS&I, says the products had to be pulled so that the net financing target of £2 billion, set by the government, was not exceeded.

There are no other risk-free and tax-free saving products on the market that offer returns above inflation. With the official rate of inflation – the Consumer Prices Index – rising to 4.5% in August, basic-rate taxpayers need an account paying at least 5.63% to beat inflation and gain benefit in real terms from their savings, while higher-rate taxpayers need a 7.5% interest rate, according to Moneyfacts.

Savers that did manage to snap up an NS&I certificate will, upon maturity, be able to keep their investment for another term of the same length. Otherwise they can reinvest into any of the other savings certificates on offer to existing customers.

Other options

For savers that missed the boat, there are some alternatives. For savers that want a tax-free account, Barnsley Building Society, Chelsea Building Society and the Yorkshire Building Society offer six-year cash ISAs. These pay the increase in RPI or 2.5%, whichever is greater, on a minimum balance of £3,000.

Check out our round-up of the best cash ISA rates

The Post Office have just this week re-issued its popular inflation-linked bonds. Although not as lucrative as the previous offering, these new bonds do offer RPI plus 0.25% for three-year bonds and RPI plus 1.5% for the five-year version.

Meanwhile First Direct has a regular saver account that although is not inflation-linked, offers a high 8% return. Savers must open a current account with the bank first and then pay in a monthly amount between £25 and £300 to the Regular Saver Account. No withdrawals are allowed in the first 12 months.

Caxton FX has recently launched a bond. It is not inflation-linked or risk-free, but does offer a better return than a savings account.

The four-year bond pays 7.25% gross per year, with interest paid twice a year. The minimum investment is £2,000 and the maximum is £50,000.

The offer will close by 21 October.

The Caxton bonds are not covered by the Financial Services Compensation Scheme should those companies go bust during the lifetime of the bonds. NS&I products are backed by the government, so in theory are risk-free, while banks and building societies are covered by the FSCS for their deposit-based accounts (up to a limit of £85,000 per person, per firm).

This article was written for our sister website Money Observer

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Your Comments

What we need is a simple no notice account paying a reasonable rate, without all the built in catches and scams.
Who's up for it?

I am 70 years old I do not want to lock my savings up for long periods of time. When will they do something for pesioners like myself?