MSE News: Maximise your savings as inflation bites

D1zzy

keet83 wrote: »

i have that lloyds account however its 4% before tax where as the NS and I account is tax free, therefore it is 3.14% where as this NS and I account is 1% above RPI and is not taxed therefore it is now higher than the lloyds account

But what you get on your NS&I account is not the RPI rate now, but the spot RPI at the 12, 24 and 36 month points (the RPI figures between are irrelevant except to show a trend) - which could be well below (or above) what it is now, so its a gamble.

..Just seen Chardir made the same point so apologies for repetition, but I have a feeling that many people think that these rates work in the same way as normal savings rate (daily/ monthly calculation)

keet83

D1zzy wrote: »

But what you get on your NS&I account is not the RPI rate now, but the spot RPI at the 12, 24 and 36 month points (the RPI figures between are irrelevant except to show a trend) - which could be well below (or above) what it is now, so its a gamble.

..Just seen Chardir made the same point so apologies for repetition, but I have a feeling that many people think that these rates work in the same way as normal savings rate (daily/ monthly calculation)

i have questioned about that to see if it is monthly or annually interest, and what would happen if it was closed within an odd month like 13 or 16 month.

it may be worth me investing a small amount of £1000 in there for 12 months then to see how it goes. do you know if you are able to add more in once it has been opened? i'll have to look into this a little more.

ManAtHome

keet83 wrote: »

do you know if you are able to add more in once it has been opened?

Sort-of - you just buy another certificate, so will be a different start/maturity date than the first one. You can buy as many as you like up to the maximum of £15k in any one issue.

It's like having several different savings accounts rather than just one you can add into.

stphnstevey

So from the rest of the posts, can anyone confirm that the return is based on RPI after 12 months and not monthly?

People naturally try to compare this to a normal savings account, which they understand. The rate is variable, much the same as variable savings accounts but here not based on the banks variable rate and ultimately the bank of england base rate but the RPI.

It is similiar to a fixed rate that you have to keep the money in for a certain time period to get a certain rate of return on your money, however here the rate is not fixed but variable.

12 months is a long time when it comes to interest rates and they can vary considerably during that time. So better savings rates might come available.

So there is a small amount of risk involved, but at least you would be garanteed an inflation beating rate.

However, just be aware that over the least two years RPI has varied considerably, going into negative rate during the middle of last year (http://www.statistics.gov.uk/cci/nugget.asp?ID=19)

StevieJ

chardir wrote: »

I would still argue that this is misleading. The rate you earn does not vary each month, the rate you earn is actually the RPI inflation after 12, 24 and 36 months. The 4.7% quoted is completely irrelevant - if you invest now you won't start earning at that rate for a month, then earn next month's rate for a month, which is what the article seems to imply (in my reading of it).

Are you saying that the RPI (+1%) only gets added on the anniversary date? so you would receive the same back if you cashed in after 12 months or 23 months.

keet83

so if you open another you'll be starting from month 1? may not be worth it if i'm going to invest most of my savings in an iSA in april, £5200 at 3.5% (maybe more) guaranteed for a year. :think: £5.20 doesn't really do much these days

keet83

StevieJ wrote: »

Are you saying that the RPI (+1%) only gets added on the anniversary date? so you would receive the same back if you cashed in after 12 months or 23 months.

steveJ its not quite that simple, NS&I wouldn't win that way. it works this way

12 months = 0.85% + RPI
24 months = 0.95% + RPI
36 months = 1.21% + RPI

so only on average it equals out at the stated 1% + RPI a year. hopefully keeping costumers for the full 3 years to get the benefit.

david78

stphnstevey wrote: »

So from the rest of the posts, can anyone confirm that the return is based on RPI after 12 months and not monthly?

They calculate a factor greater than 1 at the end of each month. So if you buy a bond on 1st of April (say), the factor may be 1.001 at the end of April, 1.002 at the end of May, ..., and might be 1.035 after 12 months. The factor is not allowed to drop below 1 even if there is deflation.

You can multiply the factors by the amount of your initial investment to get an approximate "notional" value at any time (the online calculator does this for you), but these are not real values (unless you cash in a certificate) because the factors (and the notional value) can go down as well as up. The only factors that matters are those on the 12 month anniversaries, i.e. after 12, 24, 36 months for the 3 year certificates. At these times, the factors become locked in. You also get the interst earned added on the anniversary dates.

Reaper

Jonbvn wrote: »

You can hold £15k in 3 & 5 years certs gives £30k.

True I'll give you that, though if you only want it for 3 years there is a small reduction in the 5 year one if you cash it in early.

Jonbvn wrote: »

Approx. 2 issues per year gives £60k.

Not true. The current 3 & 5 years came out almost a year ago in April 2009
The ones before that came out in June 2008
So roughly once per year, not twice.

Jonbvn wrote: »

If you hold as a couple...

That's cheating a bit!

Jonbvn wrote: »

You can also hold in trust...

Yes but not relevant to the average saver

Jonbvn wrote: »

You may want to reconsider.

I accept some of your points and acknowledge over a period of years you can build up a big sum - but only if the rates on future issues remain attractive.

Zebra

Jonbvn wrote: »

Not it's not!

I didn't say that it was factually incorrect. What I said is that it was misleading in my opinion, and I stand by that.

I appreciate that you weren't misled by it, but I think others could be, and after the fallout of the Icelandic saga, I would have thought that MSE would be more careful about attention grabbing headlines.
Why even mention 4.7%? It's a meaningless figure to those thinking of investing now.