NS&I index linked savings account

martinman3

Sorry to resurrect this thread but since then "Quantitative easing", effectively printing money, has been suggested as a way to inflate the economies of both US and UK out of the deflation expected in 2009.
see http://forums.moneysavingexpert.com/showthread.html?t=1335697

The result of this may be a very large increase in inflation, possibly double digit, in the following years.

If this course of action is taken it may be unwise to cash in NS&I Index Linked Certificates in 2009 unless it is the final year of their term. This is because the potential returns in the following years of inflation may easily offset the possibly very low return in 2009. Also, don't forget the fixed interest part increases in the later years too.

Please note that even if the RPI is negative for one year of the term covering the deflationary period in 2009 the value of the certificates doesn't fall it increases by the fixed interest part from its value at the previous anniversary.

Biggles

martinman3 wrote: »

Please note that if the (RPI + fixed part) is negative for one year of the term covering the deflationary period in 2009 the value of the certificates doesn't fall it stays the same as its value at the last anniversary.

If the change in the RPI is negative for one year, the value of the certificates remains the same plus the interest addition, eg 1%.

Nick_C

RPI + 1% sounds good to me, whatever the value of RPI is. Your money is still growing in real terms. In fact, if RPI goes negative and you just get the 1%, then surely that is a better deal than positive RPI + 1%, as the value of the real growth is higher?

Cook_County

But it is still only growing in Sterling - so is not a guarantee of absolute wealth if Sterling continues to slide.

Arthurian

I just had a look at the historical record of RPI at
http://www.statistics.gov.uk/StatBase/tsdataset.asp?vlnk=229&More=N&All=Y
and saw footnote 2 at the bottom, which says that VAT, council tax, airport tax, insurance tax, vehicle excise duty, and more are not included. Have I read that right? Because I'm sure my local council will be merrily increasing my council tax as fast as they usually do, VAT will increase again, as will car tax, all making my personal inflation rocket - meaning these certificates are not the way out I had thought.

martinman3

Biggles wrote: »

If the change in the RPI is negative for one year, the value of the certificates remains the same plus the interest addition, eg 1%.

Yes, my error, I corrected my post.

Since this thread was started the BOE base rate has been slashed and will be again and as a result there is now probably no need to cash in certificates early.

martinman3

Arthurian wrote: »

I just had a look at the historical record of RPI at
http://www.statistics.gov.uk/StatBase/tsdataset.asp?vlnk=229&More=N&All=Y
and saw footnote 2 at the bottom, which says that VAT, council tax, airport tax, insurance tax, vehicle excise duty, and more are not included. Have I read that right? Because I'm sure my local council will be merrily increasing my council tax as fast as they usually do, VAT will increase again, as will car tax, all making my personal inflation rocket - meaning these certificates are not the way out I had thought.

Don't worry. That refers to the indirect taxes which are excluded from the CBZW and CBZX indices. The RPI used by these certificates is the CHAW index.