We'd like to remind Forumites to please avoid political debate on the Forum... Read More »
📨 Have you signed up to the Forum's new Email Digest yet? Get a selection of trending threads sent straight to your inbox daily, weekly or monthly!
Index Linking For Dummies...
Options
Comments
-
In my opinion, it would be true to say that Martin's article, referring to index-linked certificates, is an excellent example of the blind leading the blind.
The article clearly gave the impression (although qualified later in the article) that buying these cetificates now would guarantee you a return of 5.4% pa tax free in 3 years time.
What should have been said is that anyone who was already invested in these certificates, and was at an anniversary of the certificate, would have received 4.4% of inflation indexing plus the fixed interest for that year. This interest rate could have been 0.85% or 0.95% or 1.21% depending on how long the certificate had been held.
Warning: In the kingdom of the blind, the one-eyed man is king.
0 -
The 4.4% was from your post , IMHO means in my honest opinion, I am saying that most normal people know that if they are investing in inflation protection it is related to future inflation not past and the examples of RPI that are put up on the NS&I site are purely that and not a forward guarantee.
MSE Martin and ILCs - Currently (incorrect)
Inflation Beating Guarantee
[STRIKE]RPI + 1% tax free (currently 5.4%)[/STRIKE] Government-run savings organisation, NS&I, has 3 and 5 year Index Linked Savings that pay 1% more than inflation, the rate at which prices increase. It uses the higher measure, Retail Prices Index (RPI) inflation, [STRIKE]at 4.4%, meaning it currently pays 5.4% overall[/STRIKE].
SteveJ, Thanks for the reply. Ok, have removed the explanations, calculations and spreadsheet.
JamesU0 -
That's because Martin was trained as a journalist, where headlines are all that needs to be said!Consumerist wrote: »The article clearly gave the impression (although qualified later in the article) that buying these cetificates now would guarantee you a return of 5.4% pa tax free in 3 years time.
0 -
What has the fact we were in a period of deflation when a cert was taken out got to do with anything?
Everything. As mentioned in my earlier post on the thread, month on month inflation was normal up to a Sept 08 high of RPI = 218.4 and this then fell sharply to Jan 09 RPI = 210.1 during the deflationary period, and then gradually recovered back to RPI = 218 in Dec 10. Based on this ONS data, there was no increase in inflation between Sept 08 and Dec 10.
At the current Mar 10 RPI = 220.7, the effective increase in inflation between Sep 08 and Mar 10, a period of 18 months, is now actually approx 1% (eg 220.7/218.4 = 1.01 = approx 1%). The % RPIs in the first 3 months of this year (3.7%, 3.7%, 4.4%) are only reflecting this return to previous RPI levels. They are not indicating a significant increase in real RPI inflation at the moment, we are just seeing month on month %RPI figures from a deflationary hangover.
JamesU0 -
That's because Martin was trained as a journalist, where headlines are all that needs to be said
That said, I think we should also remember it is that same journalistic training which has helped him, and us, to bring the inequities in the banking system under the glare of the media spotlight.Warning: In the kingdom of the blind, the one-eyed man is king.
0 -
does it make any difference if i buy the certificate in the end of the month compare to the beginning of the month?0
-
NS&I use the index published in the previous month as the starting RPI.does it make any difference if i buy the certificate in the end of the month compare to the beginning of the month?
So if you buy before the end of April the starting RPI will be 219.2
If you buy in May the starting RPI will be 220.70 -
does it make any difference if i buy the certificate in the end of the month compare to the beginning of the month?
Pweb, bit of a dilemma at first sight given the two possibilities for purchase between the months:
Do you buy the lower Feb RPI = 219.2 knowing that the Mar RPI = 220.7 is higher (0.68%) and already fixed, with a potentially higher return after 12mths (% return = 0.68 + 0.85 + 11 mths RPI inflation)? At the moment, timing the buy between months does not make much difference because the relative return will be determined by the RPIs in Feb and Mar 2011, and the mth/mth variation in RPI (this is not the same as %RPI) which is currently 0.68% and fairly average (see post 28 on thread).
As a general rule of thumb, if you are buying ILCs in order to hedge against inflation, and without attempting to optimise returns, it is not necessary to time the buy of ILCs between months. Just ensure ILCs have a bonus of at least 0.5% to ensure a return that is close to average inflation over the period invested (this compensates for the peaks and troughs in monthly %RPI figures on maturity which determine your return). The current bonus is 0.85% after 12mths, 1.0% if ILCs held for the full term.
JamesU0
This discussion has been closed.
Confirm your email address to Create Threads and Reply
Categories
- All Categories
- 351.2K Banking & Borrowing
- 253.2K Reduce Debt & Boost Income
- 453.7K Spending & Discounts
- 244.2K Work, Benefits & Business
- 599.3K Mortgages, Homes & Bills
- 177K Life & Family
- 257.6K Travel & Transport
- 1.5M Hobbies & Leisure
- 16.2K Discuss & Feedback
- 37.6K Read-Only Boards