Tax advice of the week: Sleep soundly with NS&I certificates

No one's savings will be doing well at the moment, but it's still worth doing the sums to find out where to park your money, says Alistair Gibb in Business Tax Saver. A good deposit rate at one of our building societies pays 3.75%, but after tax of 40% that means a return of 2.25%. Given the retail price index (RPI) is around 5%, the real net-of-tax return is minus 2.75%. So what to do?

National Savings and Investments (NS&I) inflation-linked certificates have tax-free returns and aim to protect your cash from inflation as measured by the RPI. There are catches: they only pay 0.5% interest on top of inflation; there's a limit of £15,000 per person in any single issue; and they're sold as five-year investments. But the return is "a lot better" than most other deals and they're the "only product that will enable you to sleep soundly at night". They can also be cashed in any time after a year without penalty.

Non-taxpayers should look at five-year inflation-linked bonds from the Post Office instead as the return of RPI plus 1.5% beats that on offer from NS&I.

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