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MSE News: Inflation-beating savings return
Former_MSE_Guy
Posts: 1,650 Forumite
This is the discussion thread for the following MSE News Story:
"National Counties Building Society is offering a five-year deal to beat the rise in the cost of living ..."
"National Counties Building Society is offering a five-year deal to beat the rise in the cost of living ..."
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Comments
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I thought NS&I was back. 'Just think for a moment what a prospect that is. A single market without barriers visible or invisible giving you direct and unhindered access to the purchasing power of over 300 million of the worlds wealthiest and most prosperous people' Margaret Thatcher0 -
At first glance it actually looks pretty good.
The downside of fixed term acounts is usually fear of missing out on rising rates.
However I am not sure it is "inflation busting" for a basic rate tax payer. According to the NCBS Website the current rate works out at 4.54% gross, which is 3.6% net, so short of the current 4.7% RPI. However their figures are based on historic data.
I would have to sit down for a while to work out how it performs for a given inflation rate, or leave it for those on the board who are better at figures than me and more likely to get it right!
EDIT: Having read further scrap what I said. It will beat inflation because as Guy says it is RPI+50% [[STRIKE]+ 1.46%p[/STRIKE]a oops still not correct, see next post]. I still need to work through the figures though as I suspect the AER will work out lower than those figures might at first suggest. However for protecting capital it should do the job.0 -
EDIT: Having read further scrap what I said. It will beat inflation because as Guy says it is RPI+50% + 1.46%pa.
Sort of. The greater of RPI+50% OR 1.46% gross p.a., from 30NOV10. Until 30NOV10, funds earn the 1.46% gross p.a. for a non-taxpayer.
I'll make a prediction that this will be fully subscribed by the end of next week.0 -
I really must not skim read these things. Yes you are correct - the 1.46% is pretty irrelevent given the short period it applies.
Not a patch on the withdrawn NS&I account but still attractive. Yes it won't last long, I'd give it until the day after Martin's next email telling everyone about it.0 -
premierfella wrote: »I'll make a prediction that this will be fully subscribed by the end of next week.
Is there really much demand for a 5-year savings account?I'd give it until the day after Martin's next email telling everyone about it.0 -
Under certain circumstances it is actually better than the NS&I 5-year certificate, which paid RPI+1%.Not a patch on the withdrawn NS&I account but still attractive.
In the unlikely event that RPI falls over the 5 years, the 7.5% guaranteed minimum kicks in (equivalent to 1.46% AER, 1.168% net) against 1% AER tax-free with ILSCs;
In the (more likely) event that RPI averages more than 2.5%, 150% of RPI growth (taxable) returns more than RPI+1% (tax-free) for a basic rate taxpayer.
Of course the main drawback compared to ILSCs is that you are tied into this product for the full five years. Also it is taxable and tax is payable in one lump on maturity which could cause a problem for some people close to the threshold.0 -
This is what NCBS website says regarding indexation interest for this account:-
"The calculation of Indexation Interest is based on the
balance of the account on the Indexation start date,
including initial fixed rate interest capitalised on that
date. Subject to the minimum referred to above, the
rate of Indexation Interest will be 50% more than the
percentage change in the All Items Retail Prices
Index, as published by the Office of National
Statistics (ONS) or its successor(s), calculated to two
decimal places. The values for RPI used to calculate
the percentage change will be those published by the
ONS in the month before the start date and in the
month before the maturity date of the account.
Indexation interest is paid once, on the maturity date
of the account."
This is what the Office for National Statistics website http://www.statistics.gov.uk/cci/nugget.asp?ID=22 says:-
"How do I calculate the percentage change in prices between two periods in time?
Data from table 5.1 or 5.3 of 'Focus On Consumer Price Indices' should be used with this formula:
[(Later date RPI - Earlier date RPI)/ Earlier date RPI]x100 "
So for the period Aug 2005 (RPI 192.6) to Aug 2010 (RPI 224.5) that would have been
[(224.5 - 192.6)/224.5] x 100 =
(31.9/224.5) x 100 = 14.2
So that makes 14.2% over those five years plus 50% of 14.2 = 7.1
Total return would have been 14.2 + 7.1 = 21.3% over those five years.
IF my calculations are correct. I was always hopeless at maths.
I've read and re-read the National Counties method of calculation to try to find any possible differences in method, (such as RPI% at the end of the term, minus RPI% at the start, plus 50% *) but haven't found any.
Can anyone tell me what 21.3% over 5 years would have been in AER terms?
* e.g., 8% - 4% = 4% plus 2 = 6% overall0 -
If Inflation (RPI) is 3% then the return is about 4.28% by my reckoning.
If you have to accept 1.46% pa for two months (1/6 yr) then the true 'term' is 5 1/6 yrs, not 5 yrs. Also the 50% 'uplift' only applies to the increase in the RPI - rather than its 3/2ths 'power'
For example, '3% pa' is x 1.03. (1.03)^(3/2) = 1.0453 or 4.53%
Thus the difference between '1.5 times inflation' and this offer is about 0.25% pa (i.e. it's more like '1.4 times'). And it will always be less in practice whatever RPI turns out to be......under construction.... COVID is a [discontinued] scam0 -
Sounds the best rate Ive heard so far. The nsi ones were always capped to a fairly low cash amount allowed, originally it was for pensioners only so it was always kind of withheld.
If this offer lets people put their house money in there, its excellent a real lifesaver0 -
Sceptic001 wrote: »Of course the main drawback compared to ILSCs is that you are tied into this product for the full five years. Also it is taxable and tax is payable in one lump on maturity which could cause a problem for some people close to the threshold.
This, I feel, is the killer. People who can find a "tasty" sized wedge to throw into this are very likely to be either higher rate taxpayers, or sailing close to it.
We could find it paying 25%/30% all in one go.
Why can't they issue it under a Cash ISA wrapper? I'd be first in the queue!0
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