NS & I Index linked certificates

Hertsman_2

Does anyone have a view on the holding of these index linked certificates now that RPI has fallen and likely to fall further?

I invested in the NS & I in Oct 2007, over a 3 year period, a when the RPI was high. First year looked great but I'm really not sure whether these remain a sensible investment, given my certificate maturity is late 2010, or whether it would be better to switch something wiser.?

In addition, if cashing in is the best option, when is the best time to do this, anniversary or anytime?

Nick_C

Stick it out in the hope RPI bounces up

I'm holding mine, but then again they only account for about 30% of my liquid assets.

I've always compared all my savings accounts to the ILSC return, and mainly in the past its been hard to match them. Things are different right now, but who knows how long that will last. Even if inflation falls to 0%, I will still get 1.68% gross (1.35% net - basic rate taxpayer).

My aim with cash has always been to try to keep ahead of inflation. The ILSCs do that (against RPI anyway).

isofa

Stick it out in the hope RPI bounces up

I'm with Nick above, I'll still be getting 1.35% when RPI is zero.

You can never get a negative return on them, so whatever issue you took out it's RPI + a set percent.

When RPI is this low, interest isn't the be all and end all, because if inflation is low or near zero, then your funds aren't devaluing (so much) in real terms either. Inflation won't be this low for a long period, so for a long term holding, I'd not be worried at all.

You can cash in any time after the first 12 months, I don't think it matters when, I *think* (experts correct me if I'm wrong!), that'll you'll be paid out the index-linked "interest" due to that point.

nrsql

Interest is added at the end of each year. After the first year you can cash in for the greater of the value at the end of the previous year or the value at the end of the previous month.

Remember that RPI can (and probably will) be negative. In this case you can end up with 0% (but not less unless you value it monthly).

I consider it still a good product in anything apart from catastrophic circumstances. I think there's pressure to increase my holding rather than reduce at the moment.

Nick_C

Stick it out in the hope RPI bounces up

Of course if inflation does go negative, then 1.35 net becomes even more attractive!

nrsql

Unless CPI increases and RPI decreases.
Mortgage interest and house prices are hitting RPI.

What we want is a big drop in RPI this year - how much it goes below 0% doesn't matter as that's the cap - the more the better.
Followed by a big increase next year so all the gains will be realised.

Of course if you're like me and spread the certificate dates over the year then some will win and some will lose but overall you'll do better than a steady rate.

chris1

nrsql wrote: »

Remember that RPI can (and probably will) be negative. In this case you can end up with 0% (but not less unless you value it monthly).

Does this mean that "inflation plus 1%" means that you will get 0% if we have deflation at 1%? But that you would still get 0% if deflation was 2%?

Arthurian

Stick it out in the hope RPI bounces up

From nsandi.com's terms and conditions:-

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.

As far I can see, that means you will never get less than the +1% or +whatever the rate was for your certificate.

nrsql

Think the current issue is at 1.1% above RPI for the first year.

So if RPI on your anniversary was 0% then you would get 1.1% interest on the certificate locked in.
If RPI was -1% or -2% or -20% you would still get that 1.1%.

so for a -5% followed by +5% you would get
1.1% + 6.3% which works out at 7.47%
Much better than the average RPI over the period (remember that -5% followed by 5% is -0.25% not 0%).

Of course the question would then be "how well does RPI reflect inflation?".

SpinnerB

Stick it out in the hope RPI bounces up

If you are out of debt and have have filled your cash ISA's and want some safe money (i.e believe in the RPI ) then surely these make sense for the saver?

Hertsman_2

Take another valium

Thank you all for your words of wisdom on this subject. Not sure I understood all the maths but then again there's a lot going on in the finance sector I don't understand at the moment. We'll follow your advice and 'watch this space'.

:beer: