NS&I Savings Certificates

Molotov

With the fall in interest rates and increase in inflation, the index-linked savings certificates seem to good to be true, yet I can't find much discussion on here.

Am I missing something?

Count_Dante

There was a discussion here:
http://forums.moneysavingexpert.com/showthread.html?t=1219433

A lot of people are predicting RPI to sink very soon, so they may not be so good.

Zebra

No, I don't think you are missing something.

Although your money does have to be tied up for 3 or 5 years, and despite what anyone may tell you, nobody (including Gordon Brown apparently) knows what is going to happen to inflation in the next 5 months, let alone 5 years.

In my opinion, the large increase in the cost of fuel and commodities seen over the past 12 months still hasn't filtered through completely to the retail level, and inflation is only heading one way, while interest rates will need to come further down.

Be aware though that the government uses the RPI (Retail Prices Index) rather than the more usual, and higher, CPI (Consumer Prices Index), when calculating the interest rate.

The interest though is tax-free, so in my opinion, a decent product, which won't be around for much longer.

isofa

Your money doesn't have to be tied up for 3 or 5 years, they are the standard certificates to buy, but after 12 months you can withdraw with interest.

There are many threads on this subject, some in great detail including this one and this one.

Th Consumer Prices Index (CPI) annual inflation is the Government's target measure (not RPI) – this was 5.2% in September, up from 4.7% in August.

The Retail Prices Index (RPI) is the most general purpose measure of inflation. It is used for uprating of pensions, benefits, contracts, wage bargaining, rents and all sorts of other increases. Up to now it's been much higher than CPI. Full detail at National Statistics Online.

NS+I Index Linked Certs are an excellent choice for high rate taxpayers.

PS The government doesn't set the interest rate, the Bank of England does

Molotov

Thanks Count-Dante - I'd missed that thread, which has quite a few good points in, particularly about the forecasts for inflation - although I always take the B of E forecasts with a pince of salt, and don't really trust government figures.

As always there's differences of opinions, but those against them didn't really explain why they were.

There also seemed to be a bit of confusion as to when the interest rate applied was actually calculated!!

Thanks too Zebra and Isofa - although what do you mean by the B of E "setting" the interest rate, I thought the whole point was that it was calculated from the published rate of inflation?

I'm a basic-rate taxpayer but, as Zebra says, I'm happy to keep the savings for 3 or 5 years to get the maximum benefit.

isofa

Molotov wrote: »

There also seemed to be a bit of confusion as to when the interest rate applied was actually calculated!!

Thanks too Zebra and Isofa - although what do you mean by the B of E "setting" the interest rate, I thought the whole point was that it was calculated from the published rate of inflation?

I was pointing out that it is the BoE, independently of the government, who set the base interest rate. Obviously this is different to the RPI+% rate on the savings certificates - I think we were talking at cross purposes!

Slightly off-topic, re the Base Rate - full details here. In summary:

Interest rates decisions are taken by the Bank's Monetary Policy Committee. The MPC has to judge what interest rate is necessary to meet a target for overall inflation in the economy. The inflation target is set each year by the Chancellor of the Exchequer. The Bank implements its interest rate decisions through its financial market operations - it sets the interest rate at which the Bank lends to banks and other financial institutions. The Bank has close links with financial markets and institutions. This contact informs a great deal of its work, including its financial stability role and the collation and publication of monetary and banking statistics.

nicko33

Molotov wrote: »

Thanks too Zebra and Isofa - although what do you mean by the B of E "setting" the interest rate, I thought the whole point was that it was calculated from the published rate of inflation?

The ILSC are (RPI + x) %
Different issues have different values of x
Presumably the x is set by the BoE in order to meet whatever the Govt say they need to borrow

The 3 year
Issue 15 was RPI + 1.35
Issue 16 was RPI + 0.35
Issue 17 was RPI + 0.70
Issue 18 is RPI + 1.00

edit:
I thought 16 was +0.35 but their Historic Interest Rates page says different (+0.25) [the 5 year was +0.35]
http://www.nsandi.com/pdf/historic_interest.pdf

gozomark

Molotov wrote: »

(I) don't really trust government figures.
.

I you really don't, why would you buy a product issued by the govt and priced off the inflation rate calculated by the govt

isofa

gozomark wrote: »

I you really don't, why would you buy a product issued by the govt and priced off the inflation rate calculated by the govt

That sentence doesn't make any sense!

If you are referring to why would you invest in this product - well if you are a high rate tax payer, it's a no brainer, work out the figures. In times of high inflation, even as a basic rate tax payer it offers a good return. Remember it's tax free too.

Molotov

gozomark wrote: »

I you really don't, why would you buy a product issued by the govt and priced off the inflation rate calculated by the govt

Sorry maybe I was unclear, I trust the government that they will pay an interest rate calculated on the basis of their published rates, I'm just not convinced that those published rates are based on the reality of inflation found in the shops.

As Isofar rightly points out, that doesn't stop it being a good (or bad) investment.

gozomark

isofar - I agree with you, its a good product as part of a balanced portfolio, especially for a higher rate tax payer. I'm just saying that if someone thinks the govt is fiddling the inflation figures (which I don't), then why buy something linked to a fiddled figure, and issued by the bodydoing the fiddling


As Isofar rightly points out, that doesn't stop it being a good (or bad) investment. - well it does if the real inflation rate is 10% say...