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National Savings, Index Linked Savings Certificates
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breaghboo
Posts: 3 Newbie
With the Bank of England rate down to 3%, thoughts please on Index Linked Savings Certificates. I believe RPI inflation is around 5.0% + the 1% interest on top and tax free seems a good move to me. Any thoughts please.
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Comments
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I'll definitely be increasing the amount I have invested in these. Inflation is likely to stay high for some time yet.
Pros:
- Inflation beating (recession-proof)
- Tax free
Cons:
- Must hold for 12 months to get any interest
- If inflation or interest rates change drastically they could become poor value0 -
I started buying these for my dh and myself 4 years ago (and this is a bit pathetic ) but I really enjoy using the calculator in the ns&i site on the 18th of the month so I can see the amount of interest added. Believe me they are very well worth getting and at the very least will keep track with inflation so that savings don`t devalue. The peace of mind is also important
I agree with chardir that inflation will stay high for quite some time0 -
I agree with chardir that inflation will stay high for quite some time
On the contrary I feel it will fall back dramatically as the hike was based primarily on energy and food prices which have already fallen a lot and are continuing down.The upcoming recession will also drive prices down.
But given the big rate cut today, N&SI certs may remain quite a competitive product particularly for higher rate taxpayers.Trying to keep it simple...0 -
With the BOE slashing interest rates, isn't that likely to devalue the pound which means the price of imported goods will go up.
I also think that we will see high inflation when the economy starts to recover as the BOE will be reluctant to raise rates quickly to head-off inflation "in case it damages the recovery".0 -
we`ll see. Either way the £ will still be worth a £ plus a little bit more in the certs. Better than a mattress and sleepless nights.
It is bad enough waiting for icesave compo at the moment and wondering where to put that so it doesn`t erode too fast in the coming year.0 -
I agree with Kittie, the highest paying internet accounts are loosing out to inflation.The current RPI is a better investment without any further interest on top.
Don't forget the return is tax free so at the current RPI of 5.5% you would be getting an equivalent of 6.875% for a basic taxpayer, with an extra 1% on top it's equivalent to 8.25% for a basic taxpayer.
With regards to inflation, the 1.5% cut to 3% in base rate is intended to stop inflation going too low. It is expected to fall before it rises again. Maybe you could argue that you should wait before buying a certificate but you would only be commiting for 1 year, then with the option to keep or sell as you think fit.0 -
I agree with Kittie, the highest paying internet accounts are loosing out to inflation.The current RPI is a better investment without any further interest on top. Current RPI of 5.5% is equivalent to 6.875% for a basic taxpayer, with an extra 1% on top it's equivalent to 8.25% for a basic taxpayer.
It's worth noting that 5% is the current RPI inflation not the index itself. It represents what your investment would be worth had you invested 12 months ago. By investing now you'll actually receive whatever RPI inflation is quoted at in 12 months time (or the overall inflation when you cash-in/reach the end of the term).0 -
It's worth noting that 5% is the current RPI inflation not the index itself. It represents what your investment would be worth had you invested 12 months ago. By investing now you'll actually receive whatever RPI inflation is quoted at in 12 months time (or the overall inflation when you cash-in/reach the end of the term).
So if you leave the money in for the full term, you will get interest based on the RPI each month that you've been saving (not an average of the RPI during this time or the RPI in the month that your saving ends)?0 -
So if you leave the money in for the full term, you will get interest based on the RPI each month that you've been saving (not an average of the RPI during this time or the RPI in the month that your saving ends)?
It's calculated based on the RPI in the month your saving ends (technically it's calculated annually in order to apply the 1% interest, but the effect is similar).
The formula is: investment amount * maturity RPI / initial RPI
Currently the RPI is 218.4. If, for example, you invest £100 now and in three years the RPI is 252.8 you will receive: 100 * 252.8 / 218.4 = 115.75 (ignoring the extra interest)
You're also protected in that if there's negative inflation you still get your initial investment back.
Hope that hasn't just made it more confusing!0 -
One thing I'm thinking about on this, is this. Unlikely though it may be (or seem?), what happens if we have a period of deflation? How much interest do savings earn then?
My worry is that we haven't seen the full effect yet of mortgage and personal credit defaults filter into the economy, or of the slowdown. We're in a period I don't think we've seen almost in living memory: A stock market crash that looks a lot like that of 1929 with a similar credit crash in which the credit markets have dried up. So it's plausible to my inexpert mind that we could have an extended period with a relatively fixed money supply with credit exceeding GDP. Anyone out there an economist who could predict if that would mean debt-deflation? Or am I just being too cautious!!?kind regards,
cishanjia.0
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