National Savings and Investments gets a boost

The Autumn Statement gave the green light to National Savings and Investments (NS&I) to raise more money.

Hidden in the small print of the Autumn Statement was the news that the Treasury had increased the forecast money to be raised by NS&I in the current financial year by £2bn.  The news prompted some weekend comment that NS&I would be back in the market for savers again and generated some complaints from other deposit-takers.

The reality is rather different.  The Treasury increase was little more than recognition of what had already happened.  In the first six months of the year NS&I raised a net £2.4bn, even though its original target for the year is £0 (give or take £2bn).  As if to prove the point, four days after the Autumn Statement, NS&I announced that it would be cutting the rate on its Direct ISA interest rate from a highly competitive 1.75% to a middling 1.50% at the end of February.

The Autumn Statement said that “Given the increase in gilt yields (Since March 2013), raising finance through NS&I is now comparatively more cost effective than through equivalent gilts.”  However, index-linked certificates do not appear to fall into this category.  The latest offer for reinvestment of maturing index-linked certificates is RPI + 0.05% for terms of two three and five years, while the four year index-linked gilt is currently offering a yield of RPI – 1.37%.  In other words, borrowing via index-linked savings certificates would cost the government nearly 1.5% a year more than via index-linked gilts.

7th February 2014.