National Savings & Investments (NS&I) has long been the Cinderella of the savings world. But the retail arm of the Treasury is worth a second look, particularly if you pay tax.

For one thing, NS&I has been quietly raising its rates. It is true that some remain derisory, particularly on taxable products, but it does have a secret weapon in the shape of its tax-free range.

Premium Bonds are perhaps the best-known of these products. The prize money is based on a percentage of the total fund, which is expected to be 3.8 per cent for August, the first draw available to buyers in June.

Because there is no tax to pay, anyone in the 40 per cent tax band would have to earn the equivalent of 6.3 per cent from a bank or building society to match that rate. For the more cautious, though, the returns look much better on tax-free Savings Certificates.

The top pick for higher-rate taxpayers must be the index-linked issues. Both the three and five-year certificates pay 1.35 percentage points above the retail prices index (RPI), updated monthly.

With the RPI standing at 4.8 per cent in April, falling to 4.5 per cent this month, the equivalent pretax return for 40 per cent taxpayers is hovering around 10 per cent. Even for those on the basic rate, the return is a very healthy 7.3 per cent.

Justin Modray, of Bestinvest, the independent financial adviser, says: “Arguably, stock markets may perform better than that, but it’s a ‘what if’ scenario. It would be hard to find any investments with the certainty of index-linked certificates.”

Less compelling are the ordinary fixed-rate certificates, which pay the equivalent of 6.25 per cent for higher-rate taxpayers. And while Children’s Bonus Bonds offer the equivalent of 8 per cent, most children are unlikely to benefit, given that very few pay tax.