Q: I have a 5 year National Savings Certificate maturing and I have the option to roll it over for another 5 years. The rate they offer is 0.01%, which seems very low. Considering how good everyone says these are – is it worth it?

A: It sounds to me as though you have an Index-Linked Certificate which pays an inflation related return.

Unusually, the inflation linking uses the Retail Price Index (RPI) rather than the generally lower, Consumer Price Index (CPI). The latest issue of the 5 year Index-Linked Certificate pays RPI + 0.01% pa. As with most savings rates, this is less than it has been in the past, although as your maturing certificate probably only paid RPI + 0.5% per annum, not that much less.

Although the “+ 0.01% per annum” looks terrible, even when compared to bank accounts these days, the question is what is RPI likely to be over the next few years? At times in 2015 the annual rate of RPI dropped below 1% however, 2016 has seen it rising again and the July annual figure stood at 1.9%. If RPI reverts to something like it has been over the last 5 years, one might hope for between 2% and 3% per annum (plus the 0.01% of course!).

The other thing to remember is that this is a tax free return. For many, the introduction of the Personal Savings Allowance, given how low interest rates are, will make this irrelevant. However, if you are a higher rate taxpayer, it is far more likely that you will be paying tax on interest and so even a 2.01% tax free return is equivalent to a 3.35% gross interest rate, and that’s a lot more than you can get from a bank or building society these days.

Finally, NS&I allow you to renew a 5 year Certificate for either 5 years or 3 years. So if you think interest rates are bound to go up in a few years’ time and the next maturity option might offer better than “+ 0.01%per annum”, you can always choose to renew for 3 years and see what happens.