Savers may have jumped for joy upon hearing National Savings & Investments (NS&I) inflation-linked bonds will be put back on the market this year, but it seems some banks and building societies are less than impressed with the news.

Fears over increasing inflation have created a huge demand for index linked savings products on the high street – especially after NS&I withdrew its index-linked savings certificates last July.

According to an article in The Times, banks and buildings societies are now worried that the return of the popular NS&I inflation-linked bonds will essentially steal all their business and are preparing to lobby the Treasury to that effect.

Graham Beale, chief executive of the Nationwide — Britain’s biggest building society — told The Times that the impact could be enormous and cautioned the state-owned institution not to repeat a previous sales blitz two years ago which, he said, ‘sucked all the liquidity out of the system’.

According to The Times: He warned that a sudden shift of savings from the private sector to NS&I could be particularly destabilising, pointing to very generous terms offered on NS&I one-year and two-year bonds in November 2009, which led to a flood of switchers.

Jane Platt, chief executive of NS&I, however played down the likely impact of the certificates, and said that if demand did prove to be very strong, NS&I could adjust the terms or availability of its other savings products.

And while the move may be a small kick in the teeth for the banking sector, surely anything that will encourage the banks to work harder for our business and, god forbid, offer us more competitive rates is a good thing? Isn’t that what today’s interim report from the Independent Commission on Banking is all about – improving competition? And I’m sorry but who can honestly blame savers for preferring to stash their cash in a government backed savings account given the banks’ recent history.

What do you think? Are you planning to ditch a savings product with your bank in favour of a NS&I index-linked bond? Or should the government back off and give the private sector a chance?

As the banks and building societies aren't actually lending money via mortgages, and HMG keep pumping free money into them, they don't actually need our money, which is why they offer such derisory interest rates. HMG OTOH need the money to keep shoring up the banks and foreign governments, and to keep paying off older debts, so they are prepared to offer good interest rates.

I wonder who will blink first?

For any high rate tax payer (of which there seems to be more and more each year) given RPI is currently running over 5% a 1% indexed return equates to finding a 10% return elsewhere. Even if the BoE got the CPI down to 2%, the RPI will still be higher at say 2.5% so that is still 5.8% needed. That is of course assuming that a NSandI and saving account are assumed equal risk which they aren't - in which case you'd need to find a high street account paying higher than 5.8% (or 10% currently).

Definitely a good deal I think unless you're a standard rate tax payer in which case you might be able to access a better rate.

I'm for one will be withdrawing as much as I can

Ah, poor banks, my heart bleeds ... Savers will go wherever the best deals are offered, common sense, human nature, obvious.
If the banks don't like it, they have only to offer better!
Curb their obscene levels of bonuses and top pay, for example, and they'd have some cash available to support their making better offers, which would then attract the funds to support loans to businesses trying to grow ...

So the idea of NS&I is that you put money in and it doesn't actually devalue while you leave it in there? Amazing! So long as you believe the inflation figures produced by the government.