NS&I changes are bad news for savers
National Savings & Investments (NS&I) has changed the terms of its popular inflation-busting certificates, making them less flexible.
It will charge new savers penalties for taking money out of their index-linked savings certificates before they come to the end of their term.
It is the first major shake out of the popular index-linked certificates - into which savers have ploughed £18.3 billion since their launch 37 years ago.
The change won't affect existing certificates. But if you roll your money over into a new certificate at the end of their current term, the new penalty will kick in.
These tax-free certificates guarantee your savings will keep their value by linking your return to the Retail Prices Index as long as you hold them until the end of their two-, three- or five-year terms.
They are not on sale to new savers, but if you already hold one, you can reinvest your money in a new two-, three- or five-year deal paying inflation plus 0.25% a year.
Losing the index-linking
Under the old rules, you can cash them in after a year and still enjoy the index-linking. You can make use of this generous perk if you find you unexpectedly need your money or if you think inflation is set to fall.
But savers rolling over their money into new certificates from 20 September 2012 will not have this option. If you take money out early, you will lose the index-linking on your whole investment in the year you make the withdrawal. The sting in the tail is that you also suffer a 90-day loss of interest on the amount withdrawn.
Jane Platt, chief executive at NS&I, says: "These changes do not impact on savers until the end of the investment term. We are working hard to ensure we provide clear and timely information to customers."
This article was written for our sister magazine Money Observer
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).