NS&i Index Linked Certificates - Any Point?

stv1x

I'm in the 'inflation' camp as far as what the future may hold but is there any point in going down the NS&i route?

Surely interest rates with any institution will likely rise if inflation or, worse, hyperinflation kicks in? The question is whether they are likely to rise on a par with IL offered by NS&i? Given a choice, I'd rather go with someone else and retain a degree of flexibility and earn interest in the first 12 months if I decide to withdraw within that period.

Anyone have an opinion on this?

JoeCrystal

As the saver who is putting a third of his 'Savings' share away into NS&I Index Linked Saving Certificates every month. I might be biased at the moment. To be fair, they are tax free and if the inflation do go up, I will smile knowing that I got 100% security.

As for interest... well, the interest are paid yearly and it depend on what Retail Prices Index is on the date of your certificate and the year later on the same date. I am not entirely sure myself but I do know one thing: This month, I paid £360 into NS&I ILSC. Assuming if there is no inflation changes, in five year time, I will earn an interest of £18.38. If the inflation do go up, I get more (hopefully), but I KNOW I will get £18.38. Hopefully, NS&I will issue more ILSCs, but as it is, I am always concerned that if the inflation is too high, they will withdraw them. (And that is why I am paying them in)

I always look at them like this: ISA is a tax-free way where I can follow the interest rate and Index Linked Certificates are tax free way where I can follow the inflation rate to certain degree.

stv1x

JoeCrystal wrote: »

I am always concerned that if the inflation is too high, they will withdraw them.

Do you think that withdrawal of them is likely then?

JoeCrystal

Now? VERY unlikely. But who know what is happening in over next five year time!

The value can go up or down. Just beware that your years Index Linked Growth depends on RPI on month before your anniversary. (So if there was 4% for ten month in a year and suddenly declined to 0.9% on the month beforehand. They will use (0.9%) index figure to figure out the interest. (That why I am paying it in every month for so long I can to produce overall yearly inflation. At least that is how I figured it out). Paying money in them every month to me feel better than putting lump sum.

There is the risk after all but it is tax free and 100% safe.

I suddenly got big doubt! What if the money I am paying in every month will just be connected to first one! Damn it! Will ask NS&I and get the answer soon.

sabretoothtigger

So if rpi inflation was 10% in 2 years you would get 10% for the whole term?


I dont think they will be withdrawn because there is also gilts linked to inflation. UK and USA have lots of these, about a trillions worth which is a scary prospect if schiff is right hence why he recommends gold I guess

[Deleted User]

These certs are the very foundation of our savings and we have been saving in them for almost 5 years. Our intention is to let them roll over year on year, knowing that we have risk and tax-free savings

sabretoothtigger

In theory it should be a very boring investment tbh but obviously right now that would be a nice thing with any important money

JoeCrystal

@sabretoothtigger No. That is biggest problem with the NS&I Index Linked Saving Certificates. I did try my best to read the terms and figure it out.

Imagine you took out £100 for five years term tomorrow on 14th March 09.

The interest will work out by comparing the RPI index on 14th March 09 and 14th February 10 plus the interest on the anniversary. (0.75% for first year.) The RPI value on other months do not matter in slightest. Only the RPI index value on the month before every anniversary matters. So if one month got 20% and it is not month before anniversary, then it is not taking into account.

Well, putting money in ISA and ILSC is boring but they are tax free and I have no desire to see my rightful saving interest's share going to taxman.


@kittie I am just starting out! :j Still, do you know the answer to my second post question concerning putting money in every month?

Lansdowne

sabretoothtigger wrote: »

So if rpi inflation was 10% in 2 years you would get 10% for the whole term?

Actually you can't buy IL certs for a 2 year term (though you can roll over existing 2 year ones.)

But yes if prices go up by 10% over the next 2 years, you will get 10% increase in the value of your certificates (plus of course the Extra Interest). This is not of course 10% per year but 10% in total. The whole point of index-linking is to match the rise in retail prices with a rise in value.

As for the product being withdrawn, I think they have been around for too long for that to happen. The certificates are brought into line with other interest rates by varying the amount of "Extra Interest". If prices fall for a lengthy period, the account effectively becomes equivalent to an ordinary savings account paying 0.75% or whatever the Extra Interest amount is. That is because a decrease in RPI can not result in a decrease in the value of the certificates.

tradetime

It is my understanding from reading the terms and conditions of these, that the interest re RPI is calculated every month, based on the previous months RPI thus as RPI will be released next week you are currently for the month of March getting FEbs y/y rate which was 0.1% + whatever fixed rate was applied to that certificate.

Actually, I withdraw that comment, I have just re read it, and either the method of calculation has changed or I am confusing it with something else, still trying to figure out the implications of how they calculate this product.

JoeCrystal

@tradetime See!

16. An index-linked value will be calculated as V x B/A where:

(a) 'V' is the value of the Certificate at the beginning of the index-linked period (this will be the purchase price or the value at an anniversary date);
(b) 'A' is the Index figure applicable to the calendar month in which the first day of the index-linked period falls (this day will be the purchase date or an anniversary of it); and
(c) ‘B’ is the index figure applicable to the calendar month in which the day after the final day of the index-linked period falls. This will be the maturity date, an anniversary date, or the day after the last completed month for which index-linking is earned.

The actual interest for first year in five year term is 0.75% plus index linked... I am still deeply confused right now. Maybe index-linked value should not be treated as interest but a value of our money that change?