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Brown countong on National Pride.

Byline: By Wales on Sunday

Though surveys show few households are in the position of having more money coming in than they are paying out, Gordon Brown's eagle eye may have spotted that saving may be back in fashion.

A survey from National Savings and Investments claims people are becoming smarter when it comes to saving - with 27 per cent taking inflation into account as they choose a home for their money.

If so, bank and building society accounts paying minimal rates of interest could soon get their comeuppance.

But where can a saver stash spare cash, if stock market prospects are dodgy and property prices possibly about to crash?

NS&I, the Government's savings and investments arm charged by the Chancellor to grow investments by pounds 10bn in five years, is now rather keen to help.

While Mr Brown takes the axe to tax breaks on ISAs, he appears to be creating a bigger tax shelter for the better off at National Savings.

NS&I is lifting the limit on index-linked and Fixed Interest Savings Certificates from pounds 10,000 to pounds 15,000 per issue, the first increase in 13 years.

Investment in Savings Certificates and interest is not declared to Inland Revenue - so filling in tax returns is easier.

But for higher rate taxpayers, and probably for pensioners too, the bigger attraction could be tax-free income.

On a five-year, 33rd Issue index-linked certificate, higher rate taxpayers enjoy a return equivalent to 6.08 per cent gross. On a three-year, 6th Issue certificate, the return is equivalent to 5.75 per cent.

As for Fixed Interest certificates, a five- year 75th issue offers the equivalent of 5.43 per cent gross, while a two-year 25th Issue offers 5.05 per cent.

Alongside banks and building societies, National Savings looks almost generous: INGDirect pays 4.41 per cent on instant access cash, while Universal Building Society offers 4.75 per cent on minimum pounds 100 deposits with a 120-day notice.

Index-linked certificates, linked to the retail prices index, would be an even better bet if inflation rises. RPI is rising at 2.6 per cent per year, on top of which NS&I pays 1.05 per cent on five-year certificates, or 0.85 per cent over three.

If inflation goes up, as many fear, higher-rate taxpayers could see gross returns around seven per cent.

Although building societies, including Northern Rock and Birmingham Midshires, offer bonds over one to three years around the 5 per cent mark, the security of NS&I impresses some investors.

Launched in 1916 to help fund the war effort, Saving Certificates enjoy the backing of HM Treasury on accounts which do 'what it says on the tin'.

More than two million people hold pounds 17bn in Savings Certificates - and that figure could jump. When the personal Premium Bonds limit increased in May 2003 from pounds 20,000 to pounds 30,000, a record pounds 1.1bn gushed in within a month.

More than pounds 24bn is now held in Premium Bonds - promising only a guaranteed return of the original stake.

For investors who want something a little more racy - again with no chance of losing a penny of their capital - NS&I offers Issue 7 of its Guaranteed Equity Bond (GEB) until mid-May.

The last one, Issue 6, raked in pounds 100m in less than two months. Issue 7 is a five-year investment, promising a gross return equal to 110 per cent of any growth in the FTSE-100 over the five-year term.

If you invested pounds 10,000, and FTSE- 100 doubled, you would earn pounds 11,000 - plus your money back for pounds 21,000.

But Gordon Brown has poor 'form' on this. After seven years of his Chancellorship, the FTSE-100 is barely ahead of where it was when he began - so Issue 7 of GEB is for optimists only.

Nervous investors may be tempted. But it is crazy to put too much into them.

Frank Cochran at FSC Investments says: 'Anyone who chooses National Savings stands accused of reckless conservatism. There are better places for cash.

'I tend to put higher rate taxpayers into Investment Bonds - where they can draw five per cent per year tax free, and enjoy underlying growth in the value of their bond which is free of tax too.

'With property funds like Legal & General, investors have been earning 11-12 per cent - five per cent income and 6.15 per cent growth. There isn't an HM Treasury guarantee you get your original money back, but commercial property is a reliable income stream with money mostly invested in properties on leases of at least 25 years.'

National Savings is trying to improve its act - and it could be a useful bolthole if Gordon Brown discovers that he hasn't abolished economic 'busts' after all.

n INFORMATION: National Savings certificates can be bought on 0500 500 000, or online by downloading an application form at www.nsandi.com. Premium Bonds available on 0845 964 5000 or online at same address. National Savings Guaranteed Equity Bond available on 0500 500 000. FSC Investments (01902 422333) offers a free factsheet on bonds and property funds.
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Title Annotation:Features
Publication:Wales On Sunday (Cardiff, Wales)
Date:May 9, 2004
Words:862
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