NS&I Underrated by this website

moneysavinmonkey

Reaper wrote: »

How do you work that out? I thought tax on savings accounts was 20% which would make the equivilent interest only 6.6%. I'm not very familiar with NS&I though so maybe I am missing something?

sorry you are right, I calculated it when the RPI was 5.8%....

basic rate tax on savings is 20%
so to calculate the equivalent rate of a normal bank account divide by 0.8

so... the rate was...
5.5% tax free = 6.875% equivalent
and is now...
6% tax free = 7.5% equivalent

ginvzt

What happens to the rates when we hit 'deflation'? Not saying that we will, but just theoretically - would they start charging you the interest?

moneysavinmonkey

LOL - yeah if we had deflation of more than -1% I guess you'd either get no interest or they'd start taking money off each month!! - you'd have to cash it in at that point!! Which you CAN do, contrary to what Martin says in his article. Stevie J's posts explains very well.

Reaper

If I have this right...

Current inflation is 5% if the RPI figure is used (is that the right one?)
The current 18th issue pays 1% above that tax free.

So that means new savers will get 6% tax free.

I must say that sounds pretty good considering there is a chance that we might face a period of higher inflation and lower interest rates.

You may have won me over. I'll have to go away and have a think about what I believe inflation is going to do.

moneysavinmonkey

Reaper wrote: »

If I have this right...

Current inflation is 5% if the RPI figure is used (is that the right one?)
The current 18th issue pays 1% above that tax free.

So that means new savers will get 6% tax free.

I must say that sounds pretty good considering there is a chance that we might face a period of higher inflation and lower interest rates.

You may have won me over. I'll have to go away and have a think about what I believe inflation is going to do.

Yup that's right - up to the individual to decide on what inflation will be like but it's an amazing rate at the moment + 100% safety is a priority to many at the moment.

I'm not saying it is right for everybody and there are no guarantees on inflation, but I do think it is underrated here + some of the things in the Savings article about it are just plain wrong!

Don't know what the reason for this is - perhaps nothing as sinister as click through revenue but could just be that NSI don't have the 'publicity' machine that a bank would - I'm sure if Martin posted unfavourable information that was wrong about a commercial savings account someone from the bank would phone him up to put him right!

amistupid

I've been on the website. If it's good enough for Alan Sugar, Germaine Greer, Stephen Hawking and Bob Geldof it's good enough for me. Bob should form them into a new group "The Boomtime Cats" but the harmonies may prove difficult.

Count_Dante

If RPI falls to 2% (or whatever), then you can bet interest rates will be low as well. That would mean poor rates on savings accounts. These certificates not only pay a good rate of interest right now, but you avoid the hassle of rate tarting every so often, and are also getting insurance against inflation getting a bit out of hand (admittedly unlikely). And they are 100% government backed.

They make a good choice for non risky long term savings.

moneysavinmonkey

amistupid wrote: »

I've been on the website. If it's good enough for Alan Sugar, Germaine Greer, Stephen Hawking and Bob Geldof it's good enough for me. Bob should form them into a new group "The Boomtime Cats" but the harmonies may prove difficult.

:rotfl: well quite!

Milarky

moneysavinmonkey wrote: »

The most recent official bank of england forecast:


I been following their forecasts and they have consistently predicted inflation to slow and return to base rates over a 2 year period (funnily enough that is what their remit is!), and consistently inflation has continued to rise above expectations. So I'm forming my own opinion on what is going on!

Note however 'high' the fan goes, its central prediction is always that inflation in a year's time will be 3 percent. Now why is that? Simple - they give themselves two years to hit '2%', but their 'allowed' margin (if the policy works) is +/- 1%. Thus a 2% 'target', with a 3% (''phew, didn't we do well to get it within our range'') intermediate prediction.

If they (ever admitted they) couldn't hit 3% in a year then 2% in two years loses all credibilty. As it is they've quietly dropped the implicit 'symmetry' of the 2% target (that is, as time passes, the average rate of CPI must approach 2%) Since 2003, when they adopted CPI to track (instead of RPI) there has been a cumulative overshoot of 2.8%


Note on the 'symmetry' comment
The CPI for Sept 2008 is 110.3 The CPI for Dec 2003 was 97.5
See http://www.statistics.gov.uk/StatBase/tsdataset.asp?vlnk=7174&More=Y

58 months @ 2.% pa should make the current CPI 97.5 x 1.02^(58/12) = '107.3'

The current CPI is therefore 110.3/107.3 or about 2.8% above trend. If CPI actually is as low as '3%' 12 months from now that makes the index 3.8% above trend by then. Even if they then get CPI to '2%' 24 months from now, that overshoot will have been 'locked in'. For the policy to be achieved therefore they have to then 'track' below 2% for a number of years - say CPI at 1% for 4 years or about 1.4% for 6 years or 1.6% for 10 straight years! None of which sounds remotely likely to happen. Thus they should admit that they have let the 2% target 'get away' from them in reality and CPI inflation will never have averaged 2% under their watch.

moneysavinmonkey

hmm, didn't quite follow you all the way there Milarky -
but here is the inflation prediction chart from previous before last report (May 08)



as you can see inflation was again magically predicted to hit 3% within 1 year and 2% within 2 years... the whole graph is on a totally different scale to the more recent one (posted above) and the current >5% inflation is not even within the 'fan' of probabilities!!

the next report comes out in November.

http://www.bankofengland.co.uk/publications/inflationreport/irfanch.htm