Inflation figures not good news for some NS&I savers.

cepheus

Whilst Consumer price inflation dropped sharply in December from 4.1% to 3.1%, less well reported was the headline Retail Prices Index (RPI) which fell to 0.9% from November's 3% rate, the biggest fall in 28 years. This is what the National savings index linked saving certificates use as a benchmark, so some of these could now be paying less than inflation as measured by the CPI figure!

fred_49

Earlier in the year RPI was higher than CPI so you could have said that index linked certs were paying much more than normal at this time by your logic.Index linked certs are linked to RPI and comparing rate against CPI is pointless.Whether index linked certs are a good or bad buy depends on your view on how accurate the RPI figure is.

Aegis

fred_49 wrote: »

Earlier in the year RPI was higher than CPI so you could have said that index linked certs were paying much more than normal at this time by your logic.Index linked certs are linked to RPI and comparing rate against CPI is pointless.Whether index linked certs are a good or bad buy depends on your view on how accurate the RPI figure is.

And whether or not your personal situation corresponds better to CPI or RPI. Right now someone whose personal situation is closely correlated with CPI will be hating these products, while someone linked more to RPI will be feeling much the same as ever.

gozomark

y-y RPI will be negative in a few months...

poppy10_2

gozomark wrote: »

y-y RPI will be negative in a few months...

But the index linking has a floor at 0%, so you'll always get at least a small positive return

baby_boomer

An perhaps a larger real return.

Higher rate taxpayers who have been in NSI Certificates have done well to date.

And there's always the worry of further inflation if the government prints money to get out of its hole.

EalingSaver

poppy10 wrote: »

But the index linking has a floor at 0%, so you'll always get at least a small positive return

Are you sure about that? I have not been able to find anything to that affect. What I did find in the Ts and Cs online was the text below, but this is not the same - it simply means that if RPI does go negative, which is highly possible, that their wont' be a decrease in maturity value. That implies that the if you have an issue paying RPI + x% then the nominal RPI floor is -x%. Where did you find the info that the floor was 0%?

11. In the event of a decrease in the Retail Prices Index:

(a) any maturity value will never be less than the preceding anniversary value, or, in the case of a Certificate with a term of one year, the purchase price, together with interest at the relevant rate for the period from the preceding anniversary date to the maturity date;
(b) any anniversary value will never be less than the preceding anniversary value or, in the case of the first anniversary, the purchase price, together with interest at the relevant rate for the year.

ManAtHome

EalingSaver wrote: »

Where did you find the info that the floor was 0%?

11. In the event of a decrease in the Retail Prices Index:

(a) any maturity value will never be less than the preceding anniversary value, or, in the case of a Certificate with a term of one year, the purchase price, together with interest at the relevant rate for the period from the preceding anniversary date to the maturity date;
(b) any anniversary value will never be less than the preceding anniversary value or, in the case of the first anniversary, the purchase price, together with interest at the relevant rate for the year.

Depends how you read the ...never be less....together with interest.... I suppose. Moneybox live this afternoon claimed to have checked with NS&I and said that if RPI went negative, you'd still/just get the 'extra' percent or so. Usual 'clear english' terms and conditions - lol.

DavidAC

If you cash in after a year you get index linking and interest for each complete month. If RPI goes negative I think the index linked interest part will not be less than at the previous anniversary, but could be less than the previous months. So the certificates value could be less than if it were cashed in earlier. A real dilema. Is it worth cashing in all index linked certificates that are more than a year old?

I suggest checking the value with the online calculator now and again in a months time to see if it is worth less. If anyone checks the value of their certificates each month with the online calculator could you please post how the value has changed in the last month, up or down. That will probably be the most reliable way of telling.

david78

If the RPI index goes to zero or lower on an anniversary day (and on maturity) you will get the fixed interest agreed for the issue you have purchased. This is usually small.

You can't lose money. In fact you might be better holding these bonds if the index is negative compared with positive.

Example 1 -- deflation happens

Suppose you spot something in the shops you want to buy for £1000 (e.g. a new sofa). Instead of buying this you invest in a bond for 1 year. Suppose the average RPI over that year was -2% and the fixed interest was 1%. After one year you cash the certificate in and recieve £1010.
You should then be able to go to the shop and buy the sofa for £980 (allowing for deflation) and will be able to keep interest of £30 out of your certificate money.

Example 2 -- inflation happens

Sofa still costs £1000 but RPI is +2%. Fixed interest is 1%. At maturity you get about £1030 (its not quite this but about right). You buy the sofa which now costs £1020, and have £10 left of your certificate money.

So deflation wins ... assuming you want to spend the money eventually.

The two calculations would only be the same if the indexation on the certificates was allowed to be negative, which doesn't happen according to the T&Cs.

DavidAC

I have an index linked certificate that reached an anniversary on 9th November and I took a note of its value then. I just used the online calculator and it is still worth the same. It should have had two months of index linking and fixed interest added. If they took index linking as zero instead of negative over those two month it should still be worth more due to the fixed interest. However it is calculated, according to the online calculator it has made nothing in two months. I have onother one that reached an anniversary on 3rd August, today more than 5 months on the online calculator valued it 0.09% higher.

It looks like the index linking and fixed interest are added together and that is the return you get. If index linking as negative it subtracts from the fixed return. If index linking and the fixed interest are negative from one anniversary to the next the return will be zero, you will not get any fixed interest. If I am right the value can go down from one month to the next. For me this is disasterous, it looks like its time to cash in the lot. I really do hope I am wrong.