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www.InvestmentGuide.co.uk Other types of Stock
National Savings
BOND or STOCK
Lump sum invested with a loan stock in a building society or private company in return for an interest payment which increases in line with the Retail Prices Index. The stock has a fixed life at the end of which the company guarantees to repay the nominal value in full plus the rise in the Retail Prices Index since the stock was issued. Both interest and capital are index-linked.
Who can invest Anyone.
How worthwhile Good value for taxpayers who don't need a high income but wish to protect income and capital against inflation. There is more choice of stock with Stock Government Index-Linked. For up to £10,000 for periods of 5 years, consider instead National Savings Index Linked Certificates. Also consider US Government Inflation-Indexed Notes and Bonds and Inflation-Indexed Euro Stock .
Minimum £2,000-£5,000. Less not worthwhile because of minimum commission.
Maximum None.
Suitable Lump sums.
Money back A few days. You can sell the stock at any time at the current market price. The interest and repayment value depends on the current and expected rate of inflation. The price does not match changes in the Retail Prices Index.
Interest Variable. Changes at each interest payment to reflect changes in the Retail Prices Index over a previous 6 month period. About 5 weeks before the interest (dividend) date, the stocks go ex-dividend. The seller gets the next interest. When you buy a stock (or if you sell before it matures) your contract note giving details of the transaction, shows accrued interest as an addition or deduction from what you pay or receive. There are special rules for taxing this - see Tax below.
Interest paid Half-yearly by cheque to you or direct to bank account.
Tax 20% tax is deducted from the interest. Non-taxpayers and 20% taxpayers can reclaim tax from the Inland Revenue. Higher rate taxpayers have to pay extra; basic rate taxpayers don't. Any accrued interest added to your contract note (see Interest above) is liable to income tax; if accrued interest is deducted you can deduct it from other interest you receive from the stock and claim a tax rebate if applicable. These accrued interest rules don't apply if the nominal value of all your stocks is £5,000 or less, see Inland Revenue leaflet IR68 Accrued Interest Scheme. Gains on stock are exempt from capital gains tax.
Fees to pay Stockbrokers charges vary: Around ¾% to 1½%; minimum £10 - £30. Same when you sell. None if you buy a new issue direct or on redemption.
Passbook Stock certificate issued.
Children Under 18 stock must be held in an adult's name.
Risk Low if you hold until redemption. Some if sold before but interest rate rises will not cause the price to fall as much as they do with stocks which have a fixed rate.
How to invest Ask a stockbroker about Nationwide 3 7/8% Index-Linked 2021, 4¼% Index-Linked 2024 and any other issues.
Where from A stockbroker.
Last updated 17
December 2007.