It's not looking good for savers these days. Two of the most popular savings products of the past few years have become victims of their own success and are being withdrawn from the market. Here's the low-down...
National Savings & Investments have been synonymous with inflation beating accounts for years - their Index Linked Savings Account guaranteed to beat the annual RPI by 1 per cent if you kept your money there for three or five years. But last week came the dire news that they've scrapped both these accounts and their Fixed Interest Savings Certificates for new savers.
The good news is that if you already hold one of these products you're quids in. You can rollover your investment into the same product you currently hold when it matures. Or you can reinvest into any of the other Savings Certificate terms and Issues - either the three or five year issue of Index-linked Savings Certificates or the two or five year Issue of Fixed Interest Savings Certificates. So make sure you make the most of this option.
But if you don't already have one of these accounts, where can you turn for an inflation beating return? According to Moneyfacts.co.uk, the best alternative just now is a five year Fixed Term Bond from ICICI Bank paying 4.75 per cent (currently less than Retail Prices inflation, but more than Consumer Prices Inflation). The next best option is probably going to be a Cash Isa as the interest is tax free. Or you may want to consider a structured product like a With Profit Bond. These might produce a higher return but they're considered a higher risk so you should really seek independent financial advice.
Then there's the gloomy news about Child Trust Funds (CTFs). Since 2005, the parents of all children born on or after 1 September 2002 and who receive child benefit have received a £250 voucher from the Government to start a CTF. Once opened, the CTF belongs to the child, but can be topped up by friends and family to the tune of an additional £1,200 a year and the Government pledged to pay another £250 into the CTF when the child turned 7 years of age.
Over 3.5 million parents have taken out CTFs in the UK, providing a real nest egg for their child's future! But the Coalition Government has decided that Government contributions to CTFs must end. While it can't stop contributions immediately, a number of important changes come into play next week:
From next week, the age 7 top up will no longer happen. So if your child didn't turn 7 by the end of July, then no further money will be contributed to their CTF by the Government.If your child is born in the UK before 2 August, you have just three months to claim Child Benefit in order to be granted the old £250 starter voucher.If you are eligible to receive Child Benefit on or after 3 August this year, the starting voucher you will receive for you CTF will be reduced to just £50.From next April, no further vouchers will be issued as all Government contributions to CTFs will cease.
Finally, over 1 million CTF vouchers have been issued by the Government that are still valid, but haven't been used. So, if you're already sitting on a £250 CTF voucher for you child, don't let it expire! It only lasts 12 months and every day it's not invested is a day of lost interest. Furthermore, while it should still be valid after April next year, that could easily change, particularly if providers close their CTFs to new business and withdraw from the market.