In a huge blow to savers, National Savings & Investments (NS&I) has withdrawn its tax-free savings certificates and cut the rate it pays to more than a quarter of a million pensioners on its income bonds.
Savers now have no way of beating inflation – currently running at 5% – on risk-free accounts.
The Treasury-backed organisation has made the move after sales proved much stronger than anticipated. It is the first time these inflation-proof savings accounts have been withdrawn from sale since they were introduced in 1975.
The NS&I three and five-year Index-Linked Savings Certificates offered a rate of inflation (as measured by the Retail Prices Index) plus 1 percentage point.
To match the 5% inflation rate, basic-rate taxpayers need to earn 6.25% before tax and higher-rate payers a huge 8.34%.
NS&I two-year and five-year Savings Certificates, which have been on sale for nearly 100 years, have also been closed to new savers.
From midnight on Sunday, NS&I's website and call centres stopped selling certificates. Sales at Post Office counters have also been suspended "with immediate effect".
Any postal application which arrived on Monday 19 July will be honoured - but any received after midnight on the 19 July will be returned.
Jane Platt, chief executive of NS&I, said the decision to close savings certificates had been "difficult" but it is a "temporary" one.
In a further blow NS&I has cut the rate it pays to 254,000 pensioners relying on interest each month from Income Bonds by 0.25 percentage points.
It now pays 1.16% after tax (1.45% before) on balances up to £25,000 and 1.4% (1.75%) on higher amounts. Its Direct Saver rate is also down by the same amount to 1.4% (1.75%).
Savers put £5.4 billion into NS&I between April and the end of June this year, up a huge 69% on the £3.2 billion in the same quarter last year.
The 1.3 million savers who already have Index-Linked and Fixed Rate Certificates are unaffected by the move. They can reinvest their money in other certificates when their current issue matures.
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