Leeds Building Society Inflation Buster ISA - a good deal?

irishwench69

Hey everyone

I saw this on MSN money: http://money.uk.msn.com/guides/product-reviews/article.aspx?cp-documentid=9359452

My partner and I have both filled our ISA allowance for 08-09 already (with Icesave), but I was wondering what people thought of this deal from Leeds Building Society. As a higher rate taxpayer, is it worth switching, or will there be penalties associated with this?

I think Icesave have a rate guarantee until 2013, I notice Leeds is only until 2010.........

Hmmmmmm........opinions anyone?

IW x

sdooley

yep looks ok - or if you have spare cash you could look at NS&I index-linked savings certificates - tax free but don't use up your ISA.

Obviously if inflation drops neither will be much good.

yedi20

sdooley wrote: »

yep looks ok - or if you have spare cash you could look at NS&I index-linked savings certificates - tax free but don't use up your ISA.

Obviously if inflation drops neither will be much good.

What about National Counties Building Society index linked ISA? This offers a higher rate above the index linking and on the face of it looks very attractive - however I have some concerns about the way they do this – they use the average change in RPI over three years. In other words if average RPI in Aug 5% and in August 2011 5.5% the interest received would actually only be just over 3% which is hardly index linked?? As I understand the NS&I certificates they add a lower amount of interest but on top of the RPI. Unless I have misunderstood the National Counties one it seems to be a misrepresentation of index linking. Or have I got it wrong?

Milarky

It's been raised recently in these threads.


http://forums.moneysavingexpert.com/showthread.html?t=1110923

http://forums.moneysavingexpert.com/showthread.html?t=1100699


The point of difference between the Leeds one and the National Counties one is the former can be exited without loss of interest on the first anniversary - whereas the latter pays 0.35% more interest per annum but is for 3 years (not 2)

The Leeds IFB Issue 6 is inferior to the Issue 5. It still provides a timed exit should inflation fall as quickly as the BOE is suggesting compared to the National Counties. However, NC does represent 'RPI+8%' after 3 years - so think of it as a '3 year fix' in those terms and you can decide whether that is vaulable enough...

There is also some doubt in my mind that Leeds have been able to handle the flow of applications for transfers recently - my request for a transfer is now 30 plus days old and still waiting. National counties might be quicker

if average RPI in Aug 5% and in August 2011 5.5% the interest received would actually only be just over 3% which is hardly index linked?

Care to explain that? I don't understand what you mean

yedi20

The way that they work out the index linking is as follows - they take the average RPI over the month of Agust 2008. I am not sure what it is exactly but assume that 5%. Then in August 2011 they take the average RPI over the month. If inflation has fallen by then the rate of interest over the 3 year term is just 2.66%. If inflation goes up to 5.5% then the rate will be 2.66 + 0.5 - this does not as they state "guarantee that the investment will have beaten the rate of inflation" -far from it. Either I have completely misunderstood the way they work it out or this does not seem like a very good deal? In contrast the NS&I product takes the RPI, say 5%, and then adds 1.5% = 6.5%. So at first sight the National Counties deal looks much better - however I am not sure that it is!

martinman3

yedi20 wrote: »

The way that they work out the index linking is as follows - they take the average RPI over the month of Agust 2008. I am not sure what it is exactly but assume that 5%. Then in August 2011 they take the average RPI over the month. If inflation has fallen by then the rate of interest over the 3 year term is just 2.66%. If inflation goes up to 5.5% then the rate will be 2.66 + 0.5 - this does not as they state "guarantee that the investment will have beaten the rate of inflation" -far from it. Either I have completely misunderstood the way they work it out or this does not seem like a very good deal? In contrast the NS&I product takes the RPI, say 5%, and then adds 1.5% = 6.5%. So at first sight the National Counties deal looks much better - however I am not sure that it is!

From the first thread given above

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?

nicko33 wrote: »

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

yedi20

martinman3 wrote: »

You should have read the first thread given above

Thanks - but this is not actually what the blurb from National Counties says - I have pasted it in

The calculation of Indexation interest is
based on the balance of the ISA on the
Indexation start date, including initial fixed
rate interest capitalised on that date. The
rate of Indexation interest to be paid will be
the percentage change in the All Items
Retail Prices Index (RPI), 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 two
months before the start date and in the
month before the maturity date of the ISA.
Indexation interest is paid once, on the
maturity date of the ISA.
In the event that the percentage change in
the RPI is negative or zero, the rate of
Indexation interest will be zero. This means
that if RPI inflation has been negative over
the term of the ISA there will not be any
deduction from your capital even though the
prices of the goods and services included in

the index will have fallen.

If they are using the RPI index (can you have an index of an index?) or RP02 why don't they say that?

Linton

RPI stands for Retail Price Index. The figure of 5% or whatever isnt the RPI, it's the change in the RPI over the past 12 months.

martinman3

Linton wrote: »

RPI stands for Retail Price Index. The figure of 5% or whatever isnt the RPI, it's the change in the RPI over the past 12 months.

Yes, where the National Counties ISA has the potential to confuse is that index-linked interest is paid only at maturity.

The values for RPI used to calculate the percentage change will be those
published by the ONS in the month two months before the start date and in the month before the maturity date of the ISA.

So you get 3 years of index-linked interest which is calculated at the end of term.