MSE News: Maximise your savings as inflation bites

Former_MSE_Guy

This is the discussion thread for the following MSE News Story:

"Savers who want instant access to their cash in a standard account cannot keep pace with the cost of living, meaning their money is losing value ..."

Read the full story:
Maximise your savings as inflation bites

Jonbvn

To guarantee to beat inflation, for savings up to £15,000, National Savings & Investments (NS&I), the Government-run bank, has index-linked savings paying 1% above the RPI inflation, tax-free, provided you lock your money away without access for three years.

The above quote is not strictly correct. If you wait for a minimum of one year, you can access you money without loss of interest.

ses6jwg

IIRC, you can also access your money at any time BEFORE 12 months is up, but you for-go any interest?

david78

Jonbvn wrote: »

The above quote is not strictly correct. If you wait for a minimum of one year, you can access you money without loss of interest.

This is correct. The wording should be 1 year. Once the first year is up, they act like an instant access account as, even after the initial term is up they automatically roll over to a new certificate (unless you tell them you don't want to do this). Edit: Interest rates are stepped so you will earn a higher interest rate the longer you hold them.

ses6jwg wrote: »

IIRC, you can also access your money at any time BEFORE 12 months is up, but you for-go any interest?

You recall correctly. You lose interest and index linking in the first year of a new certificate. This doesn't apply to new certificates obtained by re-investing old ones or which are roll-over certificates.

twizzel

MSE_Guy wrote: »

"Savers who want instant access to their cash in a standard account cannot keep pace with the cost of living, meaning their money is losing value ..."

I think this is a good wake up message for savers but its a bit scaremongerish.
What many people forget is that the inflation rate is historical, it's already happened. The only measure you can use when looking for a savings account is the inflation forecast.
The 3.5% RPI that Guy Anker talks about as being needed for your savings to keep pace, was for the last 12 months and you can't do anything about that now.
The forecast is that inflation will be lower by the end of this year, if for no other reason than the VAT increase having passed through the calculation mechanism.

Jonbvn

So overall, the consensus seems to be that ILSC are much better way of beating inflation than stated in the article?

ses6jwg

Yes they are much more flexible than the article suggest.

However, to get the maximum benefit you really should hold them to maturity (3 or 5 yearS).

Rollinghome

The article also says:
"How many savings accounts beat inflation?" and "Fixed rates beating inflation for a basic rate taxpayer (at least 4.37%) 8 (14%)" etc. Is that past or future tense?

What it presumably means is "how many savings accounts currently offer fixed rates for the next 1-5 years equivalent to inflation over the last 12 months. Whether those accounts will return better or worse than inflation or if other interest rates will rise during the period held is a complete unknown.

Martin Lewis, MoneySavingExpert.com creator, says: "The imperative right now is for everyone to earn the maximum rate. Even if that's less than inflation, the more you earn the less the impact.

Err, yes, but I expect most people already figured that much. So long as no-one takes that to mean they should automatically lock into the highest/longest fixed rate - which could be very costly.

I suspect the article will confuse more than it informs.

ed123_2

...however if you lock into say a five year fix the first few years you would be up on shorter term rates also the interest received sooner would be less effected by inflation...

MSE_Martin

Thanks for some of your feedback on this - we are going to check out the note about early release (as we're doing NS&I in the tip) and I will go and have a quick look through the article to see if i can address some of the concerns raised above (edit: small tweaks made now to clarify within fixed rates that we're only relating it to current inflatioN)

Having said that the "this article confuses more than helps" isn't that valid - the point is as my quote in it states - to make everyone site up and check their savigns pay decent amounts. While savvy savers in this board may be good - most people still have sub 1% rates in incumbent banks and when i get asked (as happens all the time) they still dont realise the poverty of such accounts.

Former_MSE_Dan

Hi folks,

We are checking this with NS&I, but my reading of this page:

http://www.nsandi.com/products/ilsc/rates

is that if you withdraw during years 2 and 3, you'll end up with slightly less than RPI+1%, due to the way it structures the interest (i.e. Indexing+0.85% in year 1, +0.95% in year 2, and +1.21% in year 3).

Has anyone seen info on their site contrary to this? If you have, please let me know in this thread and i'll put it to NS&I.

Cheers

Dan