Record year for National Savings

NATIONAL Savings and Investments (NS&I) has revealed bumper results as investors pile into its safer funds. The Government-backed bank reported that a record £66.5bn was invested in its funds in the year to the end of March - and that it raised £3.4bn in funds for the Treasury through the sale of gilts.

The record performance is mainly due to an astronomical increase in Premium Bond and Guaranteed Equity Bond sales.

Premium Bond sales shot up by 57% to £7.49bn, of which more than £1bn were sold in May 2003. The bumper May sales were a result of the NS&I increasing the maximum investment limit from £20,000 to £30,000.

Today it raised its target for the next four years from £10bn to £15bn.

Alan Cook, chief executive of the NS&I said: 'The security we offer makes saving with the NS&I an attractive proposition, and customers continue to put their trust in us. Our Guaranteed Equity Bonds were enormously popular with sales well over £200m. We also introduced the new Easy Access Savings Account, in place of the Ordinary Account.'

Anna Bowes, investment manager for Chase De Vere Financial Solutions. said: 'As interest rates have fallen and faith in the stock market has not fully restored, it has become more attractive to invest in Premium Bonds, where you stand a chance of winning a £1m jackpot.

'With premium bonds you are able to gamble without risking a stake so they are a bit of fun. However, I would guard against investing all your money in Premium Bonds, as there are of course instances where people don‘t win anything at all.'

Premium Bonds prizes, which start at £50, are paid tax-free, which has attracted many higher-rate taxpayers. The average rate it pays is 2.8%, rising to 3% in October.

The surge in sales of Guaranteed Equity Bonds has been seen as a further sign of investors lack of confidence in the stock market. The bonds guarantee to return 105% of any FTSE 100 growth over five years.

Bowes said: 'If you are nervous about investing your capital in the stock market then this is a good way of investing in it without the risk of losing your capital. And with a return of 105% of any rises the FTSE 100 experiences it is quite generous. But you must bear in mind that if the stock market does not increase you will only receive your original capital back and if you do get any gains from stock market increases they are subject to income tax.'