Wednesday, 10 March 2010

National Savings & Investments - an offer you can refuse

Another email - this time from that bastion of government run savings in the UK:


With our new Direct Saver, you’ll earn an attractive rate of interest and will have easy access to your money. And, like all accounts and investments from  NS&I  , your money will be 100% secure, backed by HM Treasury.


    * Save from £1 to £2 million per person
    * Current rate 2.0% gross/ AER (variable)
    * Apply, deposit and withdraw online or by phone 

Find out more about the NS&I Direct Saver and apply now    
     
Yours sincerely
Tim Mack

Tim Mack
Head of Marketing and Communications

Gross is the taxable rate of interest without the deduction of UK Income Tax.

AER (Annual Equivalent Rate) is a notional rate that illustrates what the annual rate of interest would be if the interest was compounded each time it was paid. Where interest is paid annually, the quoted rate and the AER are the same
Where to start really.

1) An attractive rate of interest at 2.0%. Gross.

Downright lie. 2.0% (gross) interest for your common bod on the street is 1.6% after (20%) tax.

CPI (consumer price inflation) was 3.5% in January and it looked to be heading upwards. RPI (retail price inflation) was 3.7%.

What this means is that while your £100 will be £101.60 in a year (but see below), you'd need £103.50 to buy what £100 buys now. Your money is actually worth  £1.90 less than it was this time last year - you're losing money with this account!

Not so attractive now, is it?

But wait!! There's MORE!!

2) The fact that they're quoting gross/AER to make that rate seem higher than it actually should be for most people (though to be fair to NS&I, this is a requirement for all advertising in the UK that includes interest rates. Doesn't make it any more clearer to the general public.) I've indicated that the real rate for most people is 1.6%, but there's a higher rate band of 40%, so those people will only be getting 1.2%. And due to fiscal drag, the number of people paying this rate is increasing year on year due to our wonderful government's chancellor's of the exchequer failing to raise the lower limit for that 40% rate in line with inflation and/or level of pay rises.

3) That parenthetical variable, innocently hiding at the end of the line with the 'massive' 2.0% in it.

Yup - that 2.0% isn't guaranteed to stay at 2.0% It might go up!

Or down. I know which I think is more likely. From their Terms and Conditions:
Both the rates, and the balances required to earn them, if applicable, may be changed from time to time. 
No guarantees there whatsoever. In fact they could put them down to 0.1% as most other banks and building societies have done with their old savings accounts.

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