The New Leeds ISA Inflation Buster

RMcoiner

Hello Forum I am new here.

Just querying whether the new potential 12% inflation busting Cash ISA from Leeds Building Society is actually a good thing or if a hidden sting exists in its tail, other than leaving your money in there for two years.

The other question is whether you can add to it during the two years or not.

Many Thanks.

nicko33

looks like you can add to it
http://www.leedsbuildingsociety.co.uk/savings/inflation_buster_isa.html

I don't think there's any catch, but you have to decide if RPI+2.25 will be better than other rates available. Others will be better able to advise on that than me.

Milarky

nicko33 wrote: »

looks like you can add to it
http://www.leedsbuildingsociety.co.uk/savings/inflation_buster_isa.html.

That's my understanding too (having applied for the Issue 5) since it says nowhere that additions cannot continue to be made. Could be wrong and time will tell on that.

About the '12%' remark that appeared in the Mail. It isn't '12%' of course it's maybe 60 percent of 12 percent (i.e. 7.2%) which the Mail equates to 12% is you are already a higher rate taxpayer. To basic rate taxpayers it's maybe '9%'

Inflation measure to be used for this one is 'RPI June to June' (payable on 30th September) The Bank of England is forecasting a June 2009 rate of about 3% for CPI - so say about 3.5% for RPI. You may only end up getting 5.75% for next year - and 4.75% for the year after if Mervyn King is right. However the way this account works makes it 'safe' to ask for a transfer after 1st October 2009 - the date on which the first year's interest is credited - without going into a second year.

I think Mervyn King is overstating the fall in CPI (and hence RPI) on the cards - but then I have bet on this so would think that wouldn't I? The risk I am taking on an Issue 5, however, is better balanced - since the inflation period used is April to April - so, assuming RPI does begin to fall later this year, it will be higher in April 2009 than it will be for the Issue 6 in June 2009. In addition I will get an extra 0.25% pa in the bonus element.

Interest Rate: The rate applicable.. will be equivalent to the Bank of England Base Rate (5%) until 30 September 2008. From 1 October 2008
you will receive an interest rate equivalent to the change in RPI between 30 June 2008 and 30 June 2009 plus 2.25% tax-free. From 1 October 2009 until the Maturity Date (30 September 2010), you will receive an interest rate equivalent to the percentage change in RPI between 30 June 2009 and 30 June 2010 plus 2.25% tax-free
When is interest paid? Interest is calculated daily and paid annually on 30 September (commencing 30 September 2008) and on maturity, (30 September 2010).

On balance this account is still worth looking at - but I would not put all my ISA eggs in it. Be ready to transfer out at the first anniversary should inflation fall as Mervyn predicts. If the rate is coming down more slowly - then have a think about leaving it for the second year - that is what I intend to do.

nicko33

Milarky wrote: »

About the '12%' remark that appeared in the Mail. It isn't '12%' of course it's maybe 60 percent of 12 percent (i.e. 7.2%) which the Mail equates to 12% is you are already a higher rate taxpayer. To basic rate taxpayers it's maybe '9%'

The blurb at the link says
"What happens is inflation is very high?
If there was a large rise in RPI between the dates set out below, you would still receive
inflation plus 2.25% tax-free§. For example, if the percentage change in RPI was 12%, you would receive 12% + 2.25% = 14.25% tax-free"

it is directly talking about what if RPI was 12% (however unlikely that may be)

jdavtz

you will receive an interest rate equivalent to the change in RPI between 30 June 2008 and 30 June 2009 plus 2.25%

Hang on - does that mean if the RPI goes from say 3.5% to 4.5%, the change in the RPI is 1%, so you get a less-than-stellar 3.25% tax-free interest?

nicko33

jdavtz wrote: »

Hang on - does that mean if the RPI goes from say 3.5% to 4.5%, the change in the RPI is 1%, so you get a less-than-stellar 3.25% tax-free interest?

It will be worked out from the change in the RPI index (RP02), not from the RPI %age change (RP04).
http://www.statistics.gov.uk/CCI/nugget.asp?ID=21

e.g.
RPI index in Jan 2007 was 201.6
RPI index in Jan 2008 was 209.8

for this ISA, the index values for the relevant dates will be compared, and the %age change between those values will be what is used

RMcoiner

Thanks for clearing that up, so it seems to be a calculated risk then as to whether any of us decide to move our cash ISA or not.

At the moment then it sounds best to put things on hold and see how other ISA providers react.

Milarky

jdavtz wrote: »

Hang on - does that mean if the RPI goes from say 3.5% to 4.5%, the change in the RPI is 1%, so you get a less-than-stellar 3.25% tax-free interest?

Sorry, that's my fault. I edited the actual wording to make it less verbose. It orginally did make clear it was the change in the level of the index when referring to 'RPI' (which is both an index and an annual rate of inflation)