NS&I closes inflation-link saving plans

 
Tim Wallace
Follow Tim
FOUR months and half a million transactions after putting inflation-linked bonds on the market, National Savings and Investments (NS&I) has withdrawn the product to new customers.

On 12 May the five-year certificates – offering a tax-free interest rate of retail price index (RPI) inflation plus 0.5 per cent – became available.

They were part of a fundraising drive after chancellor George Osborne told the institution to raise an extra £2bn for the year.

As inflation is pushing the five per cent mark while the headline interest rate is just 0.5 per cent, the product proved a popular way to raise those funds.

Over 500,000 transactions took place in the four months since May, and NS&I had to withdraw the product for fear of overshooting its financing target.

Although figures on individual products are not released, NS&I’s results show that gross inflows from April to June, during which the inflation linked certificate was first offered, hit £6.5bn. The figure has risen from £5.5bn of inflows in the same period in 2010, suggesting the product brought in around £1bn extra in the its first two months alone.

NS&I may have been doing its customers a favour, but other industry players are less pleased.

“NS&I has unique privileges, which can distort the market,” said the Building Society Association’s Rachel Wylie. “It is hard for building societies to raise funds currently anyway, and products like this make the situation tougher. That has implications for the amount they can lend, and so has a knock on effect on the housing market, too.

“It is sensible to withdraw the product, opening up competition for other deposit takers who don’t have special privileges.”

But NS&I’s Jonty Alone rebuffed the criticisms. “We are always aware of our place in the savings market, and balance the needs of our stakeholders. We try to offer a fair rate to savers, provide cost-effective fundraising for the government, and ensure we do not destabilise the financial services market.”