Snap up a new inflation-beating government savings certificate

News of jammed phone lines amid soaring demand for the new inflation-beating government savings certificate might put you off applying. But, if you have savings that you can afford to lock away for five years, nothing should deter you.

Last summer, when National Savings & Investments introduced a similar savings inflation-linked product, it sold out in record time. This time the state-owned savings provider says that there is more availability, but you should still move quickly.

Why should you sign up?

Well, it’s one of very few products on the market allowing savers to stop the value of their nest-eggs being eroded by the high level of inflation - currently over five per cent - and it’s the only one that is tax-free. The product pays out the annual level of inflation, as measured by the retail price index, plus 0.5 per cent.

Paying no tax on the money means that, at current inflation rates, basic-rate taxpayers would pocket interest equivalent to 7.3 per cent. Those paying a higher rate would earn interest of 9.7 per cent, whilst bankers and other high-fliers paying the 50 per cent top rate of tax would make a generous 11.6 per cent on their savings. Savers can invest up to £15,000.

The Bank of England’s recent warnings about higher energy bills forcing inflation upwards will make these new savings certificates even more attractive.

Stefan Maryniak, personal finance expert at comparison site uSwitch, said the product was “the lifeline savers have been waiting for.” He added: “Consumers will see their spending power grow each year, whatever happens to the cost of living. These are a good option giving savers the opportunity to make more on their money while inflation is high.

"The only drawback to the plan is that consumers will have to tie their money up for five years. This may be too long for many savers, who may need access to money at short notice, especially in the current employment market. But, for those who can lock away some spare cash, this new way of saving may be just the ticket.”