Your money: Mixed fortunes for National Savings

Clifford German on a missed opportunity for a national institution

National Savings, the copper-bottomed government savings institution, is abolishing the pounds 20,000 limit on the maturing certificates which savers can reinvest. The move aims to allow savers who have reached this limit to keep their money with National Savings.

Yet, as for boosting interest rates paid to savers - the critical issue that might permit National Savings to continue winning a large slice of funds - the organisation has passed on the opportunity. This means that a record year for the National Savings movement is ending on a low note. In the 11 months since last April the net amount invested in National Savings has risen by pounds 4.7bn, more than 50 per cent above the original target set by the Chancellor, Kenneth Clarke, in November 1995. It exceeds even the revised target of pounds 4.5bn set last November.

But withdrawals exceeded new savings last month by pounds 170m, making February the third worst month this decade, and it needed the addition of pounds 238m- worth of interest to make a positive contribution to the amount invested. With only a month of the financial year to run and the target already reached, there is no sign of panic at the Treasury. But it is not surprising that the target for 1997-98 just announced is back down to pounds 3bn again, and even this may be unrealistic if the factors at work last month persist far into the next financial year.

Only the two best-selling products, Pensioners' Bonds and Premium Bonds, attracted more new money than was redeemed in February, and there was a net outflow of pounds 230m-worth of Savings Certificates. New investment in Premium Bonds amounted to pounds 255m last October, following the introduction of the pounds 1m prize, but in February new sales were only pounds 200m and redemptions were pounds 100m, and the product is presumably feeling some extra heat from its nearest competitor, the National Lottery.

Camelot's mid-week draw began last month and so far seems to have attracted about pounds 25m a week. Saturday lottery sales have slipped from pounds 68m to pounds 60m, but the mid-week draw has increased the total amount staked on the lottery, including Instants, from pounds 85m to pounds 100m a week

Pensioners' Bonds are rarely redeemed until the holder dies, but new sales slipped away after the rush when the qualifying age was lowered from 65 to 60 in the 1995 Budget.

Savings Certificates are also suffering. The maximum investment in the 36th issue, earnings 6.5 per cent tax-free, was doubled to pounds 10,000 in November 1991, attracting a surge of new money. Those extra sales have now started reaching maturity and the interest rate will drop to only 3.51 per cent if savers do not redeem their certificates and reinvest. Redemptions may have peaked in February, but there is still about pounds 800m more to be redeemed.

Savings certificates are still the biggest single item in the National Savings portfolio, accounting for pounds 11bn of the total pounds 61bn invested. But in the first 11 months of the current year redemptions exceeded new sales by pounds 665m. excluding interest.

The 44th issue of Savings Certificates will earn 5.35 per cent tax-free fixed for five years, which is better than most bank and building society accounts can earn, but is less than fixed rate Tessas, which offer up to 7.5 per cent tax-free. It looks as if a new issue of savings certificates may be required to sustain demand if interest rates go up again, as most investors now expect them to do after the election.

The current 43rd issue of savings certificates and the ninth issue of index-linked certificates will also be withdrawn at the end of the month, to be replaced by a new 44th and 10th issues from next Tuesday. But this is a technical change to allow holders of Ulster Savings certificates, being withdrawn from sale this month, to reinvest in National Savings. The rates of interest on the new issues will be the same as the ones they replace, and the maximum holding in the new issues will remain at pounds 10,000 each.