Money News

NS&I apologises for “misleading” interest rates on bonds

By Martin Fagan - news@consumerchoices.co.uk

A huge surge of interest has left potential investors angry that the seemingly high rate of interest isn’t as good as they were led to believe.

The government-run National Savings & Investments (NS&I) has issued an apology after admitting that it unwittingly misled potential savers with the rate of interest paid on its inflation-proof bonds.

On the 12 May, NS&I announced it was reintroducing Index-Linked Savings Certificates which seemingly promised to pay investors the Retail Price Index (RPI) plus 0.5% a year.

The RPI then stood at 5.3%, so many investors assumed they would get a return of 5.8% a year for five years.

As a consequence, NS&I has been inundated by inquiries from potential customers keen to snap up the Certificates that appeared to be paying an inflation-busting rate.

However, the NS&I product is not as simple or straightforward as it first appeared.

The return received on the NS&I Index-Linked Savings Certificates is not the current rate of RPI plus 0.5%, but the growth in the RPI index over the term of the certificate which, in this case, is five years.

Also, investors believed that the apparent rate of return - 5.8% per annum - was somehow guaranteed but it is only the fixed rate of interest, which changes every year anyway, that is guaranteed.

This means that if customers hold their investment for the full five years, they will get an average fixed interest return of 0.5% a year on top of inflation.

The index-linking is added every year on the anniversary of the original investment and this is based on the growth of the RPI over that year. Like the bonus in a with-profits endowment or bond, once the RPI growth has been added to the original investment, it can’t be taken away.

However, NS&I’s new issue of Index-Linked Savings Certificates is an investment (rather than savings) and, as with any investment, the key caveat applies: past performance is not an indication or guarantee of future performance.

Just because a previous issue of Index-Linked Savings Certificates gave a positive return, there is no guarantee the new issue will.

As well as admitting it had unwittingly misled savers, NS&I has announced it will also require its staff to undergo retraining on its products to provider clearer information to customers.