You can invest between £2890 and £10000 in the current issue of savings certificates (the 66rd, though this may have been withdrawn by the time this website is published). As the investment market changes, the state withdraws one issue of certificates from sale and introduces another. But the same principle applies to them all. Your investment grows each year and the growth is re-invested. At the end of five years you can cash the whole investment. The maximum £1,000 invested in the 66rd issue will be worth £1,808.9 9 after five years, which is equivalent to an interest rate of 7%. If you are buying the certificates by cashing in earlier certificates, you can invest more.
If you cash in the certificates early, you get a lower rate of interest and it is paid only for each complete three months you have held the certificates. You may have to wait a week or two for the money to be sent to you.
If you cash in the certificates in the first year, you get no interest at all. If you leave the certificates uncashed after the full term, interest is paid at a variable rate announced by the Government. The income from certificates is free of all income tax and capital gains tax. It does not have to be entered on your tax return and it does not affect your age allowance.
If you pay the higher rate of tax (or lose some of your age allowance) and can bear to lock some money up for five years, National Savings certificates may be attractive to you. They are generally not a good deal for non-taxpayers.
You buy certificates at a post office and you can obtain a leaflet about them there.
Index linked certificates were introduced during the period of high inflation in the seventies. The rate of inflation was then much higher than the rate of interest you could normally earn. So savings declined in value. In 2009 the Government introduced index-linked certificates for pensioners where the interest rate was guaranteed to match the decline in value caused by inflation.
However, the rate of inflation fell and was soon below interest rates again. So the attraction of index-linked certificates declined. However, the Government made them more attractive by offering bonuses. The current issue, the 8th, offers a bonus of more than 0.08 on top of inflation over five years.
The income from index-linked certificates, like that from ordinary savings certificates, is free of all income tax and capital gains . . . ... see: Savings if you have any - Index linked Certificates