2.2.3 National Savings Products
- National Savings Certificates.
- Children's Bonus Bonds.
- ISAs.
NB. The return from Premium Bonds is also tax free, but is
in the form of prizes, not interest.
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- Capital Bonds.
- Income Bonds.
- National Savings Bank Investment Account.
- Pensioner's Bonds.
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Tax is deducted at 20% rate on Fixed Rate Savings Bonds.
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National Savings Certificates provide fixed interest for a set period of time. They have no age limits for purchase but withdrawals by children aged under 7 will require the signature of a parent or guardian. No interest is payable if encashed within the first 12 months. Minimum purchase is £100 with a maximum holding of £15,000 however there is no limit on reinvesting the proceeds of matured National Savings Certificates. Normally interest is compounded annually, however on encashment of the certificate after the first 12 months but before maturity, interest is earned for each completed period of 3 months. Certificates may be either fixed for a period of either 2 or 5 years, or index linked for a period of 3 or 5 years i.e. providing a return at a fixed amount above RPI, thereby guaranteeing a real return.
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Easy Access Savings Account pays tiered interest rates with access through a telephone service or cash card. Up to £300 per day can be withdrawn from POs or ATMs. Minimum deposit £100, maximum £2 million, interest is taxable, but credited in full without deduction of tax at source.
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Children's Bonus Bonds offer a fixed rate of return over
5 years and are renewable to age 21; available to children under
16; automatic encashment at 21; minimum investment £25, maximum
holding per child £1,000.
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Capital Bonds provide a guaranteed fixed rate return over 5 years; no minimum age for holders but withdrawals by children aged under 7 will require the signature of a parent or guardian. Minimum holding £100, maximum £1 million total holding; can be held as a joint investment. Requests for encashment will normally be dealt with within 8 days.
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Income Bonds provide monthly income from investments between
£500 and £1 million (maximum for individual or joint
holding); rates payable are not fixed, and also vary with the sum
invested; the minimum for each purchase is £500; minimum withdrawal
of £500 (with £500 remaining) and require three months'
notice; monthly payments commence after 6 weeks.
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National Savings Bank Investment Account is a deposit account
operated through post offices with a pass book; one month's notice
of withdrawal is required; withdrawals without notice are allowed,
but a penalty is charged; generally pays competitive rates of interest
which is variable and which increases once holdings exceed £500;
minimum investment £20, maximum £100,000 plus accumulated
interest (for either individual or joint holding).
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Fixed Rate Savings Bonds are guaranteed fixed interest investments
for a term of either 1, 3 or 5 years. At the end of the term a further
term is offered. The minimum holding is £500 and the maximum
£1 million. Interest is paid net of savings tax at 20%.
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Pensioner's Bonds. Interest is paid monthly and is fixed
for either 1, 2 or 5 years at a time. Like income bonds, interest
is taxable but paid without deduction of tax. Minimum investment
is £500 and the maximum £1 million whether held singly
or jointly. Holders must be over age 60. Withdrawals may be made
at the end of the fixed period without penalty. Withdrawals can
be made at other times by either giving 60 days notice, during which
period no interest will be earned on the amount withdrawn or with
no notice and the equivalent of 90 days interest will be deducted.
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Premium Bonds are not really an interest bearing account,
but is a prize draw each month. Prizes are tax free. Top prize of
£1 million. Minimum holding is £100 and a maximum of
£30,000. Individual holdings only age 16 and over. Minors
may have a holding in the name of a parent or guardian. Withdrawal
of investment is instant but takes about 8 working days.
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ISA. Cash mini ISA - minimum investment £10, maximum
investment £3,000 until 2005/2006 and £1,000 thereafter.
Meets the CAT Standards.
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It can be seen that National Savings products have a number of
uses:
- Basic and higher rate taxpayers e.g. National Savings Certificates,
Ordinary Account, ISA.
- Non-taxpayers requiring a low risk, known return e.g. Capital
Bonds, Income Bonds, Investment Account, Pensioner's Income Bonds.
- Those looking for gross returns e.g. Income Bonds, Pensioner's
Income Bonds, Ordinary Account, Investment Account.
- Those looking for tax free returns, e.g. Savings Certificates and ISA.
- Children e.g. Children's bonus bonds.
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