National Savings cuts fixed-rate deals

National Savings, the government's high street bank, this week dealt a severe blow to savers seeking the stability of a fixed rate of return. It has cut the interest rates on its range of fixed-rate investment deals by as much as 0.4% before tax.

The unkindest cut fell on the One-Year Fixed-Rate Savings Bond Issue 6, which now pays a full 0.4% less than its predecessor. New rates on these bonds, which pay interest after 20% tax has been subtracted, start at 4.75 % before tax, worth 3.8% clear of tax on a minimum deposit of £500. The rates rise to 4.95% before tax, 3.96% net, on savings of at least £20,000 and 5.15% gross, 4.12 % after tax, on an investment of £50,000.

The 7th Issue of its tax-exempt, two-year fixed interest Savings Certificates now pay 3.65%, equivalent to 4.56% before tax for basic-rate payers and 6.08% for higher-rate payers. Savers opting for the five-year fixed Interest Savings Certificates, 57th Issue, is paying 3.55%, equivalent to a just 4.44% for basic and 5.92% for higher-rate tax payers. At these rates, both basic and higher-rate taxpayers can do better elsewhere. Northern Rock has a two-year fixed-rate bond paying 6.5 % before tax, easily beating the new National Savings rate. Capital One Bank returns 7.25% on a five-year fixed-rate deal. Its return on investment is 2.81% above National Savings' five-year fixed-interest savings certificate for basic-rate taxpayers and 1.33% per cent more for higher-rate taxpayers.

National Savings has not spared its granny bonds, with returns on its Pensioners Bonds paying monthly income reduced by up to 0.4%. New issues of the bonds pay 4.9% gross, 3.92% net, for One-Year and Two-Year Pensioners Bonds and 4.75% gross, 3.8% after tax, on Five-Year Pensioners Bonds. Pensioner-savers should consider other fixed-rate monthly income accounts such as the one from Providian National Bank paying 6.6% before tax, 5.28% net, fixed for one year on a minimum deposit of £5,000. For savers with at least £1,000, Northern Rock offers bonds returning 6.2% before tax , 4.96% net, with an option to fix the rate of return for one, two or three years.