MSE News: Maximise your savings as inflation bites

earthlover

Are the index-linked certs any good for non-taxpayers, or are non-taxpayers better off with a high fixed interest bond. I ask because I have a bond coming to maturity and want to know what best to put 20,000 into?

Rollinghome

earthlover wrote: »

Are the index-linked certs any good for non-taxpayers, or are non-taxpayers better off with a high fixed interest bond. I ask because I have a bond coming to maturity and want to know what best to put 20,000 into?

Almost certainly not. Don't take any notice of the nonsense in the newsletter about getting 4.7% tax-free. The people who got that would have been the ones who took out granny bond 3 or 5 years ago to mature last month and overall they won't have done particularly well. Doesn't apply to those who take them out now. No one knows what the inflation rate or competitive savings rates will be over the next 3 or 5 years.

On fixed rate savings accounts your guess on where interest rates will go is probably as good as anyones. Generally it's not a particularly good idea to lock into very long-term rates when interest rates are low... but who knows?

A 3 year granny bond taken out in March 2007 would have earned an average of a bit over 3.5% when you could have got up to 7% (tax-free if you're a non tax payer) in some fixed term savings accounts during that period.


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MiserlyMartin

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)

That's right and when RPI went negative people were only getting 1% returns. So much for the deflation arguement, which I said at the time was complete tripe. 3.7% RPI with bank rate at 0.5% what terrible times.

Rollinghome

MiserlyMartin wrote: »

That's right and when RPI went negative people were only getting 1% returns. So much for the deflation arguement, which I said at the time was complete tripe. 3.7% RPI with bank rate at 0.5% what terrible times.

The 3.7% figure is the increase in the RPI over the past year to Jan 2010, not the current rate. Many people including me put money into accounts at the beginning of that period that gave them nearly 7.00% until January. The worst I'm currently getting even on instant access accounts is 3.6%-4.00% and ongoing inflation for the current year may be much less than that.

So anyone getting just 0.5% really isn't trying.



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franklee

D1zzy wrote: »

The monthly figures just indicate a trend, and if you are unlucky enough to invest in a month when lots of upward out of the ordinary movements were applied (VAT increase, increased fuel tax etc ) which will fall out of the figures in 12 months time - you could potentially get a 12month RPI applied which is lower than the trend.

Thanks. Do you know when NS&I start using the newly released RPI figure? The RPI dates for each months release this year are:

19th January
16th February
23rd March
20th April
18th May
15th June
13th July
17th August
14th September

So if I buy an index linked savings certificate on 24th March is my starting index the new figure that was released on 23rd March or does it take NS&I a while to switch over?

DiggerUK

What if I had invested a year ago, how much would I earn today?
Sunday Telegraph, 14/03/2010.

"A £10,000 investment in a three-year issue of Index-linked Savings Certificates in March 2009 would, on its first purchase anniversary in March 2010.......value of £10,456.25 would then be used as the basis on which the second anniversary value is calculated in March 2011."

Read full article here. http://www.telegraph.co.uk/finance/personalfinance/savings/7448715/NSandI-Index-Linked-Savings-QandA.html

I make the net rate of return for 1 year at 4.5625%