Do you have any NS&I Index-linked Savings Certificates? Are they approaching maturity? Are you wondering what to do with them?
The product’s attractions have deteriorated in recent years, so renewing your certificates may not be the no-brainer it once was.
On the other hand, inflation is back and proving stickier than a toddler wielding jammy doughnuts. And if that’s a concern for you then there are still good reasons to keep even today’s atrophied Index-Linked Saving Certificates in your portfolio.
Let’s recap the main features of Index-Linked Certificates. We’ll consider the pros and cons of renewal after that.
How do NS&I Index-linked Saving Certificates work?
National Savings and Investments’ Index-Linked Saving Certificates are a unique fixed-term savings product.
The important features are:
Protection against inflation – Index-linked Savings Certificates safeguard your savings from inflation. The amount you have in them grows in line with the UK’s Consumer Prices Index (CPI), maintaining your purchasing power as prices rise.
Deflationary floor – Unlike index-linked gilts, your certificate’s value will not shrink if the index declines during the term. Instead, your savings’ nominal value remains unchanged if deflation occurs. In fact it will actually grow in real-terms and you’ll still receive interest on top.
Tax-free – Both the inflation-linked returns and the fixed interest are exempt from UK income tax and capital gains tax. Certificates’ tax-free status means they don’t take up room in your ISA or SIPP nor eat into your personal tax allowances. You don’t need to declare them or do any tedious paperwork.
Government guaranteed – National Savings and Investments is the UK government savings bank. Consequently, Index-linked Saving Certificates are as safe as investing gets because they’re 100% backed by HM Treasury.
You cannot lose money – Index-linked Savings Certificates are not potentially subject to capital losses, unlike bonds. In this sense they act like other cash savings products.
Fixed terms – Your money is locked up in Index-linked Saving Certificates for fixed terms of two years, three years, or five years. (Two-year terms are only available if you roll over an existing two-year certificate.)
Fixed interest rate – Currently you get 0.01% on top of the index-linked inflation adjustment. This is a fixed rate that is guaranteed not to change during your term.
No longer available – You can only renew existing Index-linked Saving Certificates when they mature. The Government hasn’t made new issues available since 2011! It shows no sign of changing course. This means Certificates can’t be replaced if you cash them in.
NS&I index-linking explained
With Index-linked Saving Certificates your savings are adjusted each year – on the anniversary of your investment – in line with movements in the CPI index.
The fixed interest is then calculated on your inflation-adjusted savings (not the original amount).
In this way both capital and interest keep pace with inflation.
Index-linking is applied annually, and is reinvested into your Certificate to compound over the term.
There’s no annual payout: you receive your initial savings + index-linking + fixed interest at maturity.
Here’s a quick example of how index-linking works:
CPI index = 100 (Index figure two months before the start of your certificate’s investment year.)
CPI index = 105 (Index figure two months before the end of your certificate’s investment year.)
105 – 100 / 100 = 0.05 (5% rise in CPI inflation over the last 12-months.)
The formula for the percentage increase is:
New index figure minus old index figure / old index figure * 100.
Your savings grow by the index-linked amount:
£1,000 * 1.05 = £1,050
Plus 0.01% fixed interest:
£1,050 * 1.0001 = 0.105 (10p)
Total = £1,050.10
As you can see, the interest rate is now derisory. But the index-linking makes a considerable difference when inflation is high.
How have NS&I Index-linked Saving Certificates features deteriorated in recent years?
No early access – You’re now completely locked in to your Index-linked Saving Certificate for the entire fixed period if its term began on or after 23 July 2023. If your Certificate’s term started before 23 July 2023 then you can cash in the product early – in exchange for the loss of 90 days’ interest and that investment year’s worth of index-linking.
If your old-style Certificate allows early access then do it as close as you can to your “anniversary date.” At that point your index-linking is added and a new investment year starts. Thus if you cash in a month after your investment year begins, you’ll only lose a month of uplift. Cash in one month before your anniversary date, and you’ll lose 11 months of index linkage.
Index-linked to CPI not RPI – The inflationary uplift used to be linked to the Retail Prices Index (RPI), not CPI. RPI inflation is typically higher than CPI, but this older measure is gradually being phased out in government and across a range of financial products.
Terrible interest rate – The interest rate has progressively worsened and is pretty much irrelevant today. But that doesn’t mean you should necessarily ditch your saving certificates, as we’ll see.
What are my choices when an Index-linked Saving Certificate matures?
It’s pretty straightforward:
- You can let it automatically roll over into a new Certificate of the same term
- Or select a different term, as long as it’s either three-years or five-years
- Or take the money and run
You can also withdraw some of your money while reinvesting the rest.
Splitting your reinvestment money between different terms is also an option. The minimum reinvestment amount is £100 per Certificate.
What you cannot do, sadly, is invest any new money.
NS&I Index-linked Saving Certificates interest rates
Index-linked Saving Certificates offer a 0.01% fixed interest rate, regardless of which term you choose.
That’s a pitiful return. But it’s better to think of it as a:
Tax-free, inflation-matching rate + 0.01%
To contextualise how good that can be, remember that CPI 12-month inflation was 10.5% in December 2022.
- A non-taxpayer earned 10.51% on their Index-linked Saving Certificates during that period
- So a basic-rate taxpayer required an asset yielding 13.13% to match that rate
- A higher-rate payer would have needed a 17.52% return to keep up
You couldn’t get that from any bank account. Indeed you couldn’t get it from equities either. They posted a loss that year.
Inflation has subsided since 2022 but it hasn’t gone away. Inflation can also flare up shockingly fast – despite lying dormant for decades – as the post-Covid inflationary surge taught us.
Are NS&I Index-linked Saving Certificates a good investment?
A good investment should hit as many of these bases as possible:
- Offer the potential for real returns
- Play a valuable role in your portfolio
- Diversify your sources of risk
- Be low-cost, transparent, and easy to understand
- Protect your wealth during bouts of inflation or deflation
When measured against these criteria, Index-linked Saving Certificates are a fantastic investment.
They do provide a real return, though at 0.01% a year they only just break even against inflation.
Indeed, other major asset classes have historically offered better returns than 0.01% over the long run.
But the crucial difference is that the Index-linked Saving Certificates’ real return is guaranteed. Cash locked up in Index-linked Saving Certs will match inflation every year.
In contrast money market funds posted a real-terms loss nearly every year from 2009 to 2023 (inclusive, with the only exception being a tiny win in 2015).
Most bank accounts failed to keep up with inflation during that period, too.
Meanwhile, equities, bonds, gold and every other asset class you care to mention are volatile. They can be struck by bear markets that last for years on end.
Whereas from the perspective of a diversified portfolio, Index-linked Certificates are completely unaffected by and uncorrelated with whatever is rocking other assets’ world – for good or ill.
Inflated expectations
Straightforwardly, the truly invaluable role that Index-linked Certificates play in your portfolio is as an inflation hedge.
Very few assets properly hedge inflation. And the best alternative – index-linked gilts – is much more complicated.
High inflation is a deadly foe and NS&I Index-linked Saving Certificates counters it on unbeatable terms. No other inflation hedge can give you a guaranteed real return with no capital downside along the way.
Of course, there’s every chance that inflation could fall away and interest payable on ordinary savings accounts offer a greater return over the next five years.
But that is not the point.
The idea with insurance is to take it out before you need it. And these Index-linked Certificates neutralise inflation – as well as deflation – like no other asset.
Nobody knows what inflation will do in the years ahead, which is why central banks frequently misjudge the risk. Yet here we have a super-safe inflation-defeating device that will preserve your spending power.
All for no fee!
Add in the completely tax-free returns and also their simplicity, and it’s easy to see why existing Certificate holders are loath to give them up.
Final verdict: should I renew my Index-linked Savings Certificates?
| Renew NS&I Index-linked Saving Certificate if… |
|---|
| You want inflation-proof, tax-free, risk-free capital protection. |
| You’re risk-averse, or you want to offset equity / bond risks elsewhere in your portfolio. |
| You can commit for three to five years with no access needs. |
| You value peace of mind more than investment performance. |
| Consider alternatives if… |
|---|
| You want higher nominal returns and can take the risk you may not get them. |
| You might need access to your funds. |
| You strongly believe inflation will be low over your term (and beyond?) |
| You have plenty of alternative tax shelters. |
In short, renewal makes sense when you prioritise stability, tax-efficient wealth preservation, and safety over yield and liquidity.
Bonus sections: certified details
Here’s a couple of additional sections: on the likelihood of new Certificates being offered again to savers, and what happens if you die while holding them.
Are NS&I Index-linked Saving Certificates coming back?
It’s possible that Index-linked Saving Certificates will return. After all, they were first introduced in 1975 to help protect retirees from the ravages of inflation.
However new issues were heavily oversubscribed in the wake of the Global Financial Crisis. Not surprising when bank rates crashed, inflation picked up, and the solvency of commercial lenders was being questioned.
In that perfect storm, real yields on UK Government debt fell into negative territory and it was ultimately cheaper for HM Treasury to raise money via the bond market than through its consumer-orientated NS&I operation.
But the picture has changed since 2022, with yields rebounding.
Two- to five-year index-linked gilts now offer real yields of 0.1% to 0.6%. That’s notably higher than NS&I Index-linked Saving Certificates’ real yield of 0.01%.
In theory then, space has opened up for the Government to issue new Index-linked Certificates. However there’s no word on whether it intends to, nor any obvious political appetite to assist savers against high inflation.
It’s plausible this ongoing lack of fresh availability implies the certificates are so attractive that new issues may still overwhelm NS&I’s fund-raising targets and outcompete the commercial market.
That alone should give you pause before you cash them in…
NS&I Index-linked Savings Certificates on death
Certificates continue to earn tax-free index-linked growth and interest after death.
However, the Certificate falls into the estate of its last remaining holder upon their death and so may be subject to Inheritance tax.
Joint certificates continue to be owned by the surviving holder in the event of their partner’s death.
If you inherit an Index-linked Savings Certificate then it can be transferred into your name.
You should be able to claim the money instead if you so wish. See the NS&I form: Instructions to cash inIndex-linked Savings Certificates on this page.
NS&I lists the information it requires after a bereavement on its website. It accepts photocopies of the original Savings Certificates.
You can trace lost NS&I accounts here.
Note: we’ve updated this article to reflect the status quo in March 2025, but kept the comments below for posterity. Please check the comment date if anything seems odd.
