ISA 2010 vs Index Link certs?

welshmoneylover

Hi

I just realised how close we are to the new isa season.

As rates are so low at the moment I'm considering putting the money I've saved in my Halifax monthly saver along with the money from my index linked certs (mature June) and ploughing the whole lot into index linked certs, I should have just under £5k to invest.

I'm not in a rush for the money so can wait 3 years again.

Any thoughts peeps if this would be a good move?

MumOf2

Decisions, decisions...

I bought £5K of index linked savings certs (3-year, 19th issue) earlier this week, and now have a similar decision as you have! What to do - ISA, index linked or both? And the timing, aaaaaaaaaaaargh too many options, too many decisions!!!

If A&L 3% above base ISA is still available on 6th April, I will put £5.1K in straight away (well, that's the decisions as at 10:25 5th March). Leave the rest in Lloyds Vantage 1 account, gradually build up to £7K in Lloyds 2/3 and then buy another £5K of index linked savings certs.

If the A&L ISA isn't available, and there isn't a comparable one available somewhere else, I'll buy £5K of index linked savings certs and then gradually build up funds in Lloyds 1, 2 and 3 which will be earning a net 3.2% (with monthly payouts of interest) anyway. Then will transfer from Lloyds to ISA if a 3.5%+ for 12 months becomes available. It will put off the ISA decision for a while, and the Lloyds interest is pretty good.

Thinking of you as we both make this oh so important decision

MumOf2

Consumerist

This sort of thing is always a tough call because it all depends on what inflation is likely to be over the next 3 - 5 years and whether banks will try to keep pace with it.

The Bank of England's Mervin King seems to think that the recent surge in inflation is just a predictable blip (17.5% VAT rate resumed, stamp duty on house purchase resumed) which will fall out of the RPI over the next year.

On the other hand, many economists feel that we are in for a spell of higher inflation due to there being lots of cash in the system as a result of the BoE's Quantitive Easing. Added to that, oil prices are expected to rise as the world climbs out of recession, increasing demand. Our exchange rate might also suffer due to worries about our excessive National Debt and this is likely to lead to an increasing cost of imports causing further inflation.

It's generally believed that taxes are likely to rise but it's not known whether this will include Income Tax. Tax-free savings might therefore be a way of offsetting this liklihood - you can save up to £15,000 in the NS&I index-linked savings and there are two options available (3-year and 5-year) so that's £30,000 in total plus £5,100 per year in ISAs.

It's a question of what you believe.

Hope this summary helps you with your decision.

Edit:
According to the NS&I Maturity Value Calculator, a 3-year index-linked certificate purchased in February 2007 for £1,000 would have had a maturity value last month of £1,113.10 which is equivalent to an average 3.64% AER compounded over the three-year period. That's equivalent to 4.55% AER for basic-rate taxpayers and 6.06% AER for higher-rate taxpayers.
.