HOW SAFE IS NATIONAL SAVINGS AND INVESTMENT?
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How safe is National Savings and Investment? Before I answer this question let me make it clear that there is no such thing as a risk-free investment. Having said that, some investments are inherently less risky than others. The government’s bank, the National Savings and Investment Bank, is one such investment. Why is that? Well, it’s because the UK government guarantees it and it is one of the most respected governments globally.
Could National Savings and Investment fail? In theory yes but in practice, it is highly unlikely. You will recall that the UK government bailed out the banks in 2008/9 at the height of the great financial crisis. So their protection is very powerful. Furthermore, the National Savings and Investment Bank isn’t like publicly quoted banks in that it doesn’t lend money. For example, you cannot take out a credit card, a mortgage or a loan. It is for savings only. So it is a unique, low-risk UK bank.
So what risk is there then in investing in the National Savings and Investment Bank’s products?
Firstly you have to understand that the bank is not allowed to offer products that are more competitive than the products that are available on the market because that would be an abuse of their monopoly position. So there is the risk that you could have got a better deal elsewhere.
All of National Savings and Investment’s products are low-risk, interest paying deposits or equivalent including Premium Bonds. Their products suffer from inflation risk especially when inflation is high and rising like they are now. As I write this blog CPI inflation in the UK stands at 11.1%. So their deposits, apart from their index-linked bonds, are all losing money in real terms (adjusted for inflation) to the tune of nearly 10% a year. So perversely that means that most National Savings and Investment products are currently high inflation risk assets.
So are any National Savings and Investment products worth buying? Why yes of course.
If you are a cautious investor then National Savings products are for you. Because they are government-backed.
If you like a flutter but do not wish to risk the loss of your capital in actual terms then Premium Bonds offer you the safest gamble I know.
If you like an investment that is inflation proof then National Savings Index Linked Certificates are for you.
If you like receiving your income gross without deduction of tax then once again National Savings products are for you. Most of their products pay their income gross. If you are a UK taxpayer you will still need to declare such income and, if necessary, pay tax on it. Premium Bond winnings are tax-free because they represent gambling winnings which are not subject to tax in the UK.
How safe is National Savings and Investment? It is one of the safest banks in the world. Take my word for it. You know it makes sense.*
*Risk warnings
The value of investments can fall as well as rise. You may not get back what you invest. The information contained within this article is for guidance only and does not constitute advice which should be sought before taking any action or inaction. All information is based on our current understanding of taxation, legislation, regulations and case law in the current tax year. Any levels and bases of relief from taxation are subject to change. Tax treatment is based on individual circumstances and may be subject to change in the future. This blog is based on my own observations and opinions.
Tony Byrne
Chartered and Certified Financial Planner
Managing Director of Wealth and Tax Management
If you are looking for expert guidance in Financial Planning contact Wealth and Tax Management on 01908 523740 or email wealth@wealthandtax.co.uk