Is now the time to buy index linked saving certificates

nicko33

D1zzy wrote: »

So if the best 2 year fixed are currently around 4.5%, 1 year fixed 3.75ish - would you go now, for 30k in a fixed rate or 30k (for 2 of us) in more ILs

For comparisons, don't forget that the ILSC are Tax-Free (makes it an easier decision for the Higer Rate payers)

D1zzy

nicko33 wrote: »

For comparisons, don't forget that the ILSC are Tax-Free (makes it an easier decision for the Higer Rate payers)

I endeavour to remain a Lower Rate tax payer (otherwise OH will want half the money back) - so I think I'm asking do you think over the next 3 years ILCs will outperform the fixed rates currently on offer (although I'd only do 2 years max as a fixed) - taking into account the tax free status of ILCs.
{my crystal ball is malfunctioning }

EalingSaver

I suspect that I am not the only one who got caught out by the dramatic move into deflation. That led me to look more closely at the RPI index for future decisions.

I hate to criticise this site, but when MSE was lauding IL certs when RPI was up around 4%, in hindsight I think the 'analysis' / comments on reasons for considering was shallow. of course the dramatic drop into -ve RPI could not have been foreseen as a likely event in the normal run of things. But saying that the return on IL certificates is current RPI plus x% and so this is reason to buy is in hindsight misleading. When RPI change is at its peak is probably the worst time to buy !!!

Anyway, I also topped up with the new issue a few months back .... but missed the ideal window of the Jan/Feb trough.

nicko33

D1zzy wrote: »

so I think I'm asking do you think over the next 3 years ILCs will outperform the fixed rates currently on offer (although I'd only do 2 years max as a fixed) - taking into account the tax free status of ILCs.

as only a partly-educated guess (emphasis on guess) I think there might not be too much difference between them (but I would very slightly favour the ILSC), so the best course may be to split your money between ILSC and Fixed Term Deposit accounts.

I think there are also other benefits to the ILSC in that they are not counted against you in means testing (like ISAs). I'm not 100% on that though - I'm sure someone else can confirm the details. So if you're not sure of your job security that may be something else to consider.

JoeCrystal

@nicko33 Well, I do know that interest from Index-linked Savings Certificates and Fixed Interest Savings Certificates are not counted when applying for Working Tax Credits. Not sure about other benefits however.

Biggles

RPI rose again another whole point, to 214.4.

It's now risen from 210.1 in seven months. I make that 3.51%, if that rate of increase continued for a full 12 months. Add on the 1% interest (ave over 3 or 5 years) = 4.51% net of tax = 5.63% before tax.

Those figures could obviously be proved wrong by future events, but it's still looking a good investment to me.

nrsql

maybe big jumps shortly
BOE rate drops being factored out between Nov and Feb (I think).
VAT decrease being reversed in Jan.

Think that will add a few % on top of the other recent increases.
Add on the weakness of the economy which might bringthe £ down even more so increasing import costs....

sabretoothtigger

Its unlikely the rate of increase would be constant over a year but biggles makes a fair point that these certs are returning a reasonable ongoing rate

Especially for anyone paying 40% tax otherwise, wow 7.52% is that right ? obviously projected. Whats the figure if it were zero points for rest of the five months just for balance

Biggles

sabretoothtigger wrote: »

Whats the figure if it were zero points for rest of the five months just for balance

Since you ask, Tiger......

If the RPI should remain at 214.4 for the remainder of the 12 months, which is what I think you're saying, that would show as inflation of of 2.05%. Even just adding the 0.85% for the first year (rather than the 1% average over the term), you would receive 2.9%, equivalent to 3.63% before tax, or 4.83% for a higher-rate taxpayer.

I would assume that the current improvement in interest rates generally would probably stall if prices stopped rising, so it could still be a good rate.

Zebra

Biggles wrote: »

RPI rose again another whole point, to 214.4.

Is it correct that the interest rate is based on the RPI two months previously?

So any purchases made before the end of September will be based on the July figure of 213.4, and therefore already increasing?