JEFF PRESTRIDGE: NS&I continues to do what most banks and building societies currently refuse to do, which is to give savers a fairer deal
Savings giant NS&I continues to do what most banks and building societies currently refuse to do, and that is to give savers a fairer deal.
After raising interest rates on direct savings and income bonds to a half-decent 0.5%, it has now given its three-year green savings bond a much-needed restart.
Previously as unattractive as an evening on Dartmoor with Storm Eunice in rant and rage mode, the latest bond issue will pay guaranteed interest equivalent to 1.3% per annum. That’s double the rate offered to those who bought the bonds last October when they launched — a rate I’ve described as parsimonious at best, insulting at worst.
A good sign: All banks and building societies should follow NS&I’s lead and heed our campaign to give savers a rate hike
The green bond is not without flaws. The rate is not the best available on a three-year bond; it is far from matching inflation (like the raging Eunice storm); and you don’t receive interest until the bond matures – and when you do receive it, all income will be taxed in the year you receive it.
Through careful use of the tax-free Personal Savings Allowance (currently £1,000 a year for basic rate taxpayers, £500 for those paying 40% tax) any tax can be mitigated.
All that remains is for NS&I to raise the rate of its Direct Isa from 0.35% (an insult) to 0.5% (the same as its taxable equivalent) – and for all banks and building societies in follow the lead of this organization and heed our campaign to give savers a rate hike.
Consult the history of the companies in which you invest
Whether our savings or investments are green or a whiter hue, we all save and invest to get more out of our money.
While it’s imperative to look under the hood of an investment fund before buying it, it’s also good to look at the track record of some of the companies you’re investing in.
Personally, I’m more comfortable investing in a fund that’s been around the block several times than one that’s just launched and offers nothing more than a promise.
That’s why I’m attracted to some of the publicly traded investment trusts that have been quietly in business for over 100 years, generating a mix of income and capital return. For example, the likes of Foreign & Colonial (1868), Mercantile (1884), Scottish American (1873), and Bankers (1888).
Some of these centenarians have fascinating stories, including that of Edinburgh Worldwide, now run by Baillie Gifford.
This £970m trust celebrated its 125th anniversary last year and to mark the occasion Baillie Gifford has published a book about its history – written by investment trust guru John Newlands.
It’s a fascinating read, demonstrating that the trust – like many others – has always been at the forefront of technological change.
At the end of the 19th century, he was a big investor in the railroads. Today, it invests in the electric car revolution (its main holding company is Tesla) and in companies that develop new therapeutic treatments (such as Alnylam Pharmaceuticals, listed in the United States).
This relentless focus on the future doesn’t always yield short-term returns. Over the past year, his tech-heavy portfolio has fallen nearly 43%. But in the longer term, it pays off: gains of 118% over five years.
Readers can get free copies of the book from Newlands. Or download one from www.bailliegifford. com/EWIT125 or email me and I’ll send you a hard copy.
Readers add their own tips for beating the pressure
A big thank you to readers who contacted me to tell me how much they appreciated our 50 tips to beat the cost of living, published in the Wealth section last week.
Of course, you weren’t late to come up with your own ideas. Neither does one of Personal Finance’s longest and most vocal readers, Eddie Browne.
His tips? Make sure all life insurance policies are written in trust, thereby exempting them from potential inheritance tax – any payment avoiding the laborious probate process. And use a self-invested personal pension to save for the future, because you can designate whoever you want – a spouse, children or a charity – to receive the fund when you die.
Although not strictly related to the cost of living, it is good personal finance advice. Thanks Eddy.