Saturday 27 October 2018

NS&I loses some lustre

In recent weeks there appeared to be a glimmer of hope appearing that I might be able to get a little more interest on my cash and cash-like (NS&I Index Linked Savings Certificates) holdings.  This was of interest to me as I currently have in excess of £300,000 in these products in readiness for a home purchase and to help me live off dividends only in my soon to be early retirement.

It started with Goldman Sachs entering the UK savings account market with their Marcus account paying an annualised 1.5%.  Nothing to get excited about given, that after I pay my additional rate tax of 45%, that reduces to 0.83% meaning in inflation adjusted terms I’m still going backwards at a rate of knots with the RPI currently sitting at 3.3%.  Even for those with a basic rate tax of 20% this account still sees you going backwards in real terms, both before or after you've used your £1,000 basic rate tax free personal savings allowance, as you’ll only end up with 1.5% (within the tax free personal savings allowance) or 1.2%  (post the tax free savings allowance) in your pocket.  Still better than a poke in the eye with a pointy stick as it puts an extra £222 into my pocket annually when compared to the savings product I ditched.

Then Charter Savings Bank popped in with a slightly lower annualised 1.4%.  Again, nothing to write home about, but better than what I did have meaning an extra £153 in my pocket annually.

Even RateSetter P2P rates have been picking up recently.  I’m now predominantly out of the 3 year market with most of my money in the 1 year.  I’ll soon start moving out of that as well given I’ll be likely be home buying within the next 12 months.  Since I started investing with RateSetter in early 2014 I’ve achieved an annualised 4.1% and today the money I have in the 1 year market is achieving 4.0%.  Looking at the last 1 year loans matched and today that’s ticked up to 4.9% so some benefits here as well.

At that rate a 45% tax payer is still going backwards in RPI inflation adjusted terms though as the after tax rate is still only 2.7% but for those 20% tax payers out there you’re now at least ahead a little with an after tax rate of 4.9% (within the tax free personal savings allowance) or 3.9% (post the tax free savings allowance).  Of course it should not be forgotten that the risk profile is very different between P2P and a savings account.  If Ratesetter P2P sounds of interest I still have a referral link here.  Sign up from that link and RateSetter will pay you £100 (and me £50) if you invest £1,000 with them for a year.

So far so good but then NS&I enters from stage right.  I first started buying NS&I Index Linked Savings Certificates back in late 2007 where you could get RPI + 1.35% on your money.  Over time that has been gradually eroded to effectively RPI.  For me though they were still very attractive because they aren’t taxed meaning I’m currently getting 3.3% annually on any that mature which means I’m at least keeping pace with RPI inflation.  That has all now changed with the government changing the index linking from RPI to CPI for any that mature and are reinvested from May 2019.  If inflation remains unchanged that means the rate being paid reduces from 3.3% (RPI) to 2.4% (CPI) meaning I’m £1,023 worse off annually.  Even so, sadly, 2.4% is still better than I can get on my cash anywhere else after tax with the added bonus that they are about as close to risk free as it’s possible to get today.

The end result of all of the above is that just when I thought I was going to be a little better off I’m now effectively worse off by £648 annually.  Oh well, at least the sun is shining today and for us it’s soon also about to get a little warmer.  Life’s still good.

As always DYOR.


  1. You could comfortably beat Marcus and Charter by having £50k in Premium Bonds. Maybe you both do.

    1. Thanks for highlighting this. I should have called out Premium Bonds for consideration, particularly as they are tax free, but for the median person (ie assuming you don't win one of the big prizes and aren't in it for one of them) they're of course not as good as the headline rate. Over on Money Saving Expert there is a calculator which shows:
      - If I put the full £50,000 in then in the first year the median person wins 1.0% which for me is a little better than Marcus after tax if I was the median person. I could of course do much better or worse. A median 20% tax payer is better off with Marcus.
      - If I put £5,000 in then in the first year the above still holds for the median person however drop that to £1,000 savings and the median person wins nothing. At that low savings amount only 1 in 3 win anything.
      - Longer periods don't help with bigger sums so you're still at 1.0%. Drop that to £1,000 though and over 5 years the median person is a little ahead of the 1 year person with a likely £50 win.

  2. The first £1,000 of interest is tax free for basic rate taxpayers. Up to £500 is tax free for higher rate taxpayers.

    1. Good point about the Personal Savings Allowances David. I've updated the post to mention these. For a 1.5% Marcus Account this means:
      - if you're a basic rate taxpayer (20%) the first £66,667 is tax free.
      - if you're a higher rate taxpayer (40%) the first £33,333 is tax free.
      - if you're an additional rate taxpayer (45%) you get no personal savings allowance.

  3. Yes, I can't see my NS&I certificates staying there once they mature and get rolled over to tracking CPI. Giving the vampire squid any cash to manage sticks in the craw too.

    1. Is it worth thinking a little deeper Anon?

      For any that mature before May 2019 it might be worth switching any 3 years to 5 years to keep RPI for a little longer. This of course needs to be balanced with when/if you need the money given withdrawal penalties also now exist with these. As I'm about to enter drawdown and will also hopefully buy a home in the next 6-12 months I'm definitely going to need to do some maths...

      After May 2019 everybody who has them is still ahead of any current best buy savings account. Peer 2 Peer might do better, depending on how rates play out, but their risk profile is very different so that potentially better rate comes with increased risk. The question then becomes is that risk appropriate in my portfolio? Another question is what happens if we get significant inflation? There are a few more... I still believe in having a balanced portfolio and I think NS&I ILSC's still have a place in mine for the foreseeable future.

    2. Mine don't mature until 2021 and I don't plan on cashing them in before so the decision is a little way off, RIT. I suspect a lot will have changed by then - but I wouldn't be surprised if NS&I certificates were even less attractive (although inflation might be in a very different place).

  4. I think you have to balance with some high earning accounts.

    I have a decent sized chunk of money (c. 30k) sitting in Mintos, currently earning 11.5% with guaranteed buy back. Of course there is a decent amount of platform risk but it feels like a risk worth taking for the return on offer.

  5. Hello,

    I have just discovered your site as I am in the process of moving to Cyprus. It is very interesting indeed.

    My situation is different, I took early retirement approx. 10 years ago in the UK. I am looking at Cyprus to be tax resident in the EU after Brexit. I am sure you are aware of the Cypriot non-dom status and the requirement to only be resident for 60 days. This may be useful if you later decide to take up work again. ( You will get bored eventually). It is also useful to be able to pay social security tax and eventually qualify for a Cypriot health card for your family.

    I will be visiting in early November to try and instigate the MEU1 process.

    You seem to be quite frugal so this might be suitable as an initial location to stay.

    Also Fineco bank offers money transfer at interbank mid-point and a multi-currency banking/trading account / debit card.

    Hopefully some of this is useful to you.
    Mike H.

    1. Great to hear from somebody else making the Cyprus move. Which part of Cyprus are you heading to?

      Certainly aware of the new'ish non-domicile rules and looking forward to not paying tax on dividends or interest for the next 17 years. Haven't looked at minimum days to stay resident as while we'll look to do some travel we want to try and make Cyprus our genuine home.

      As an early retiree, who isn't working, I didn't think there was any way to pay into the Social Security system meaning we're going for private health cover. From my reading it also looks like we won't qualify for the new Cyprus NHS until we are permanent residents (have our MEU3's I assume) either. Not really a problem as we're both still fairly young so private healthcare is very cost effective. Have you discovered a method for voluntary payments?

      I went to the Paphos Immigration Centre (what a grim place) when I was last there to ask about the MEU1 requirements. They gave me a printout and then depending on what criteria you're meeting they circled what they required - it's more than is on the form.

      Thanks for the hint on money transfer companies - will do some investigation.

      When are you looking to move?

  6. Hello again,
    Sorry it took a while to get back to you.

    I am looking at the Paphos area. I expect to move early next year. I am currently trying to start the MEU1 process because I believe there is a delay to interview of about 2-3 months. I would like to get the MEU1 before the end of March next year. Apparently Gwennys red tape service can help with this if necessary.

    I believe that if you declare yourself as self employed you will need to pay Social Insurance. The amount depends on your job and the amount earned.
    I am a bit confused by the whole medical card situation. I would have thought that NI contributions were transferable to other EU countries! Also my understanding is that if you earn too much you have to pay for services anyway. Might be that dividends and interest are counted as earnings for this. It is also all changing to a NHS type system sometime in the future. Best to get some local knowledge.

    Some useful information here for new arrivals;

    I will be there next week , seeing how the land lies!

    All the best
    Mike H

    1. We're also heading to Paphos and I've also heard of the 2-3 month wait although I'm not sure if that is for MEU1 and MEU3 applications... We've also contacted Gwenny and are happy to pay (even though I'm a DIY king of guy) to ensure success on the first attempt. We should have enough time with a bit of buffer to be in and registered before Brexit day but if we failed and had to wait another 3 months we'd be scuppered.

      Agree with you about Medical Card Insurance. As our primary source of 'income' will be dividends and interest we'll be registering as an Other on our MEU1. I went to the Citizens Service Centre near the Paphos Aliens and Immigration Unit and came away thinking we'd need to go private.

      Of course it starts to all change in the middle of next year with the new Cyprus NHS so we think we'll just go private for the first year and then learn as we go. Currently I don't think we'll be eligible for that either until we have our MEU3's. Will be interested if you learn something different on the ground as I definitely have seen different responses from different 'experts'.

      We know the most about Paphos and will likely rent long term here but before we do we want to give the island a good explore as there look to be some beautiful spots we haven't yet discovered first hand.

      If you're looking for a good forum I'm not sure if you've yet discovered It's a pretty active forum and the owner, Dominic, also publishes fairly regular blogs showing interesting things to explore on the island. He also hosts some webcams if you're interested.

      Good luck with your research next week. I hope you learn a lot and maybe even share a little here...