ns&i index linked certs versus icesave 7.06%

annie42

Hi - Am as green as grass when it comes to finances but I have 15k to invest and can't decide whether to go for an Icesave fixed interest account or ns&i index linked certificates. Advice as to the best option would be appreciated. I don't mind tying it up for a few years.

jem16

NS&I current issue is 1% on top of RPI. RPI is currently 4.6% so total 5.6%. If you are a basic rate taxpayer that is equivalent to 7%. If a higher rate taxpayer that is 9.33%.

So 7% or 9.33% with NS&I against 7.06% with Icesave.

Andy_G_3

Don't forget that Icesave are not signed up to the UKs FSCS £35,000 compensation scheme, they operate under the Icelandic scheme which covers the first Euro 20,000.

Your 15K would be safe under current exchange rates, but not far off the limit............

aleph_0

Andy_G wrote: »

Don't forget that Icesave are not signed up to the UKs FSCS £35,000 compensation scheme, they operate under the Icelandic scheme which covers the first Euro 20,000.

Your 15K would be safe under current exchange rates, but not far off the limit............

No, Icesave are part of it under the Top Up System:
http://www.moneysavingexpert.com/savings/safe-savings
One would reclaim the first 20k euros from Iceland, then the rest from the UK. So the full £35k is still covered

chris1

jem16 wrote: »

NS&I current issue is 1% on top of RPI. RPI is currently 4.6% so total 5.6%.

Though bear in mind this is not guaranteed, it's actually 1% plus whatever the rate of inflation is in 12 months time - so if inflation then is say 2% you'll get a return of 3% tax free not 5.6%.

earlgrey_3

jem16 wrote: »

NS&I current issue is 1% on top of RPI. RPI is currently 4.6% so total 5.6%. If you are a basic rate taxpayer that is equivalent to 7%. If a higher rate taxpayer that is 9.33%.

So 7% or 9.33% with NS&I against 7.06% with Icesave.

Remember that 4.6% is the rate of inflation calculated over the past 12 months and your return will not be based on that figure. That's what you would have got over the last 12 months had you invested. A new investment will be based on the period starting from when the certificate is taken out to when it's cashed in.

The reasons for the present RPI have included the big rise in oil and food prices over the period. Only if the oil price repeats the massive rises of the last 12 months, which seems unlikely, will it have the same effect on the RPI. If oil prices now remain static or even drift down as has happened in recent weeks it will have the opposite effect and be a downward pressure on the index. The current rate is well above the BoE target and their mandate is to bring it within target.

New upward pressure could come from currency movements and wage inflation.

Taking a fixed rate is a bet on the rate of inflation and interest rates not rising. Index linked certicates become a much better bet for a higher rate tax payer. Take your pick.

Lavendyr

Earlgrey is spot-on. Also maybe think about Kaupthing Edge which has a fixed term account apying 7.15%, slightly higher than Icesave's.

annie42

Many thanks for the replies. I already have 20k with Icesave so I think I may go for Kaupthing Edge.

martinman3

annie42 wrote: »

Hi - Am as green as grass when it comes to finances but I have 15k to invest and can't decide whether to go for an Icesave fixed interest account or ns&i index linked certificates. Advice as to the best option would be appreciated. I don't mind tying it up for a few years.

There is no need to put all your cash in one product, by putting some in NS&I index linked certs and some in a fixed rate account you can gain some flexibility and won't need to predict what will happen to the economy for the next few years.

NS&I certs have a big advantage over these fixed rate accounts in that you can have access to your investment, all or part of it, before maturity with no penalty at all if you do it after 12 months have passed. Icesave does not allow access at all before maturity, Kaupthing Edge seems to allow access but as interest is only paid at maturity you will lose all interest on the amount withdrawn.

The really tricky question which you don't ask is which term to go for with each product. I don't know the answer to that one, depends on how the BOE plays it.

chris1 wrote: »

Though bear in mind this is not guaranteed, it's actually 1% plus whatever the rate of inflation is in 12 months time - so if inflation then is say 2% you'll get a return of 3% tax free not 5.6%.

Not much chance of that figure I'm afraid as the RPI has risen 2.8% in the last six months alone and we still have massive energy price increases on the way.;)

p.s.
Has anyone else noticed something interesting, no pun intended , about how the interest is paid on these Icelandic accounts, all at maturity.
Now in the event of one of these banks collapsing before maturity, assuming that you are under the protection limit, you will only receive your initial investment back with no interest.:T

noh

Kaupthing Edge seems to allow access but as interest is only paid at maturity you will lose all interest on the amount withdrawn.

Not so. If you end a fixed rate deal early, with Kaupthing Edge, you will receive interest at the break rate. This rate is currently 1% gross less than the rate earned if left to end of term.
T+Cs here http://www.kaupthingedge.co.uk/Includes/PDF/tandcs.pdf paragraph 22.1.2
Interst rates here http://www.kaupthingedge.co.uk/our-products/interest-rates.aspx see note at bottom.

p.s.
Has anyone else noticed something interesting, no pun intended , about how the interest is paid on these Icelandic accounts, all at maturity.
Now in the event of one of these banks collapsing before maturity, assuming that you are under the protection limit, you will only receive your initial investment back with no interest

The same is true of any account that pays interest at maturity it's not something that's peculiar to Icelandic banks.

Nigel

Lavendyr

martinman3 wrote: »

TKaupthing Edge seems to allow access but as interest is only paid at maturity you will lose all interest on the amount withdrawn.

As noh states above, this is inaccurate - with Kaupthing you are paid interest at 1% below the deal rate, which woul dbe 6.15% - still not all that bad.

martinman3 wrote: »

Not much chance of that figure I'm afraid as the RPI has risen 2.8% in the last six months alone and we still have massive energy price increases on the way.;)

Where are you getting that figure of 2.8% from? RPI had actually fallen lower currently than it was a year ago (March 07 it was 4.8%, March 08 it was 3.8% and June 08 was still only 4.6%, just 0.2% higher than it was in June 07). I've just looked here : http://www.incomesdata.co.uk/statistics/rpitable.htm and it certainly doesn't seem to indicate a 2.8% jump in the last six months.