Index-linked Savings Certificate

The_Great_Mogul

Hello, Just a quick question. I bought one in august of 2007, a £15000 3yr term certificate. Do I keep it till the end or cash it in? Thanks for any advice

withnell

What rate do you get over RPI? What rate tax payer are you?

dunstonh

Did you do it for tax reasons?

I wouldnt be so hasty to cash it in. Whilst short term inflation is low and could go negative for a whilst (ILC cannot go negative so you are ok there) it is likely that inflation could come back quite quickly and quite sharply. There are a number of scenarios that could see inflation low or in deflation for a while and others that could see inflation come back big time for a while. No-one can tell as things are changing so fast.

The_Great_Mogul

I'm a standard tax payer, and the rate was 1.1% over rpi. Forgot to include it.

withnell

So at the moment you're getting equivalent of 2.4% - depends where you think inflation might go, I wouldn't say it's too bad a return at the moment

alanq

Another consideration is that in recent years it has been possible to reinvest unlimited amounts from matured NS certificates into new issues. Inflation is expected to be low for a while but when it does head upwards again it might be nice to have an extra £15000 (+growth) index linked.

The_Great_Mogul

Thanks for the info guys. I'll just leave it until it matures then make a decision.

Lansdowne

As far as I can see, your 3 year cert has made RPI+1.1% in the first year, then RPI+1.3% currently, then in the third year RPI+1.66%. It's designed to be more attractive to hold until maturity.

EalingSaver

withnell wrote: »

So at the moment you're getting equivalent of 2.4% - depends where you think inflation might go, I wouldn't say it's too bad a return at the moment

Not really the whole story, unfortunately. You don't earn RPI+x on a monthly basis. The values are calculated on the aniversary date based on where the RPI is relative to 12 months previous. The Jan RPI rate of change of 0.9% reflects where the index was in Jan versus 12 months prior. This is masking the fact that the the RPI itself is falling off a cliff face. The real calculation for the OP is where you think RPI will be in August relative to the 12 months previous. The RPI itself peaked in Sept 08 at 218.4, by Dec it was down to 212.9. The figure in August 08, was 207.3. So the call is whether for the OP is whether they think that RPI is going to continue to drop, and if so to a point where when the calculation is done at their next anniversary there is going to be any contribution from an RPI link at all.

And the current early cash in value is dropping because RPI is in negative territory as above.

Of course if you think that the changes in RPI is a blip caused by reduced housing costs (house prices and mortgage rates) and that will have worked itself out the system by the aniversary date then hold. While they are long term, they have the escape clauses, and depending on how much spare cash you have it might be better to cut and run and then buy back in to another issues when the outlook for RPI is a bit more clear.

but then again, at least you won't have the fret of them being with a bank that is going down the swanny.