For more than 150 years, British savers have trusted their investments to National Savings and Investments (NS&I). Since it was established in 1861 it has grown to become one of the largest savings organisations in the UK with 25 million customers and an eye-watering £167 billion invested.
If you’re a saver then NS&I can play an important role in your portfolio. Here, we look at how NS&I work, the main products, and the pros and cons of NS&I products.
A general National Savings and Investments (NS&I) overview
When you save or invest with NS&I you are essentially lending your money to the government. One of the key benefits, therefore, is that your money is always totally secure as it is underwritten by the Treasury.
The only exception to this is where some NS&I products may impose penalties if you encash some investment products early. Here, you may get less back than your original investment.
NS&I products can come and go, and they occasionally launch new products with a limited window for investment.
Depending on the product, NS&I offer a range of different returns:
- Interest
- Inflation-linked returns
- Stock market-linked returns
- Tax-free prizes
Access to your savings varies from instant access for some savings accounts to several years for bonds and savings certificates.
Premium Bonds
Launched in 1956, Premium Bonds are one of the most popular NS&I investments. Rather than receiving interest on your investment, each bond you own is entered into a monthly prize draw where you could win a tax-free prize.
Currently, there are two £1 million jackpots and more than three million cash prizes every month. All prizes are tax-free, and the odds of each £1 bond winning a prize are currently 24,500 to one each month.
If you’re over the age of 16 you can invest between £25 and £50,000 per person and you can withdraw your savings at any time.
Direct ISA
You can open this NS&I cash ISA from as little as £1 and contribute up to the annual ISA limit (currently £20,000).
Available to investors aged 16 and over, the Direct ISA pays a variable rate of interest and offers instant access with no penalties for withdrawal.
Junior ISA
As well as an adult Cash ISA, NS&I also offers a Cash Junior ISA which pays a variable interest rate.
Parents can open a Junior ISA for children under the age of 18, and control of the account reverts to the child when they are 18. You can open a Junior ISA with as little as £1 and contribute up to the annual Junior ISA limit, currently £4,368.
Direct Saver
One of the most popular NS&I products, you can open a Direct Saver with as little as £1 and invest up to £2 million.
Anyone aged 16 and over can open a Direct Saver, but money needs to be paid in from a UK bank account in your name. You can also pay in and make withdrawals online or by phone.
The account pays a variable interest rate and you can withdraw your money immediately without paying a penalty.
The Direct Saver is ideal for temporarily holding large sums of money in a very safe place. With the Financial Services Compensation Scheme limiting cover to £85,000 per provider, this NS&I account lets you invest a large sum with the security that your investment is backed by the government.
Income Bonds
As the name suggests, NS&I Income Bonds offer a secure and simple way of earning an income every month.
You can invest between £500 and £1 million and the bonds offer a variable interest rate with interest paid monthly. You can access your savings at any time and there is no penalty for withdrawal.
As well as receiving interest monthly, savings can also be held in a SIPP or a trust.
Investment Account
This postal account can be opened with as little as £20 and you can invest up to £1 million. While no notice is required and there are no penalties for early withdrawal, all transactions are carried out by post.
Again, the account offers a variable rate of interest and it is possible to hold cash in an Investment Account in a trust.
Accounts for under 16-year-olds can be managed by parents, guardians, grandparents or great-grandparents.
Other accounts
At other times NS&I might offer other products. In the past these have included:
- Index-linked Savings Certificates
- Fixed Interest Savings Certificates
- Guaranteed Income Bonds
- Guaranteed Growth Bonds
- Children’s Bonds
Be careful of inflation
While there are many reasons to consider NS&I products, from the potential of a tax-free prize to the security they offer, many offer returns that do not keep up with the pace of inflation.
The interest rates offered by NS&I can be undermined by the effect of inflation in the long term. For example, data from the Office for National Statistics tells us that in 2018 the average rate of inflation was 2.8%. Considering that the NS&I Investment Account currently pays an interest rate of 0.8% gross/AER (December 2019) the buying power of your money is being eroded by inflation.
Get in touch
If you need savings and investment advice, we can help. To find out what we can do for you, email admin@stonegatewealth.co.uk or call us on 01785 876222.
The Financial Conduct Authority does not regulate National Savings & Investment (NS&I) products.
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