NS&I retreat hits low risk investors

Investors now face a more challenging investment environment after National Savings & Investments (NS&I) withdrew their index-linked and fixed interest savings certificates, say experts.

The recent stock market sell-off has highlighted the risks associated with equity investment and sent many investors out in search of safe-havens to protect their capital.

An index-linker through NS&I was the only tax-efficient way investors could guarantee to maintain the value of their cash. The treasury-backed certificates offered the retail price index (RPI) plus 0.5 per cent.

However, due to excessive demand, NS&I have withdrawn the investments saying that their expectation for demand has now been met.

Oliver Roylance-Smith, head of savings and investments at Fair Investment Company, says that investors now face a much harder task finding decent returns at a relatively low risk.

“The Index-Linked Savings Certificates had proved particularly popular with nearly 500,000 transactions into the latest issue in recent months,” he says. “More of a concern however is the gap left by its removal which highlights the challenges facing savers who are looking to beat inflation.”

“Low interest rates, increased inflation and anaemic growth is a toxic combination for both savers and investors alike, and with the Retail Price Index running at 5 per cent, the outlook is bleak.”

Roylance-Smith says that the challenging economic environment is making it increasingly hard to find a savings rate you can trust.

“Fixed rate savings provide us with a fair benchmark, but even here you need to make sure you are confident in the institution itself and with an increasing number of new entrants, it might be prudent to go with a name you are familiar with.”

According to Roylance-Smith, conventional savings accounts are falling short for the majority of UK savers with no rate available getting close to beating inflation, even if you can tie up your capital for the longer term. This means that more and more people are forced to turn to riskier investments.

“The challenge is to find an attractive alternative and the decision, although tough, is a simple one - either lose money in real terms or take more risk,” he explains. “The ideal here is to have the opportunity to receive an income over and above inflation whilst not putting your capital at risk any more than you would with a savings account.”

“One such alternative is the FTSE Income Deposit Plan from Meteor which provides the opportunity of 7.5 per cent per annum and also has a quarterly payment option available. Your capital is protected and although the income is not fixed, this is the trade off for the increased rate and you need to put this in the context of the current economic landscape.”

Patrick Connolly of independent financial adviser AWD Chase de Vere says that people who are new to investment need to make sure they seek professional advice.

“For those who decide to take additional risk the best approach is a balanced portfolio containing cash, shares, property and fixed interest,” he says.

He added; “For a novice investor a sensible fund choice is Cazenove Multi Manager Diversity. This is a cautiously managed fund which invests a third in shares, a third in fixed interest and a third in other investments such as property, hedge funds, structured products and gold.”