NS&I Index-Linked Savings: Q&A

TomMoney

Have just been told by National savings that the index linking that one receives is only the DIFFERENCE between the RPI when the certificate is purchased and the RPI on the anniversary date.
The 6.3 figure given on this site could therfore be misleading.
At present (June 2010) RPI stands around 5.3 which is very high, even when I checked back over the last ten years. This means that it is almost guaranteed to go down over the next twelve months and therefore the index linking that one would receive on the anniversary would be zero.
It will always be a judgement call and a gamble.
Best to buy them when the index is low and possibly cash them in before an anniversary once they have been owned for more than one year.

noh

TomMoney wrote: »

Have just been told by National savings that the index linking that one receives is only the DIFFERENCE between the RPI when the certificate is purchased and the RPI on the anniversary date.
The 6.3 figure given on this site could therfore be misleading.
At present (June 2010) RPI stands around 5.3 which is very high, even when I checked back over the last ten years. This means that it is almost guaranteed to go down over the next twelve months and therefore the index linking that one would receive on the anniversary would be zero.
It will always be a judgement call and a gamble.
Best to buy them when the index is low and possibly cash them in before an anniversary once they have been owned for more than one year.

No!
Please read the whole thread. Post #105 is useful
The RPI is an index and if you purchased the index linked certificates today your starting point would be 222.8.

In one years time you get the percentage increase in the index + 0.85%.
So only if the index is 222.8 or lower, on the anniversary, would you get no inflation rise.

Do you expect a headline rate of 0% or less inflation in 12 months time?

Sceptic001

TomMoney wrote: »

Have just been told by National savings that the index linking that one receives is only the DIFFERENCE between the RPI when the certificate is purchased and the RPI on the anniversary date.
The 6.3 figure given on this site could therfore be misleading.
At present (June 2010) RPI stands around 5.3 which is very high, even when I checked back over the last ten years. This means that it is almost guaranteed to go down over the next twelve months and therefore the index linking that one would receive on the anniversary would be zero.
It will always be a judgement call and a gamble.
Best to buy them when the index is low and possibly cash them in before an anniversary once they have been owned for more than one year.

TomMoney, you have misunderstood what NS&I told you. The difference in the Retail Prices Index is not the same thing as the difference in the inflation rates between purchase and sale.

Say inflation is 10% at the time of purchase and the RPI is 100. If one year later at the time of sale the RPI is 105, then inflation is now 5% (ie inflation rate has fallen). But you receive 5% (the rate of inflation current when you sell). The rate of inflation when you purchase is totally irrelevant.

Mickygg

I have to say all the advice on here is top notch.

So just to be clear, it really doesn't matter when in the month you purchase these certificates - in fact it is best to wait until the mid month announcement and if the news is a big jump happened in the RPI in May then go ahead and invest in June as you would benefit from this rise just announced? Have I read this right?

Of course as long as the issue is not immediately pulled and replaced with another one with a lower % over the RPI.

lisyloo

then go ahead and invest in June as you would benefit from this rise just announced?

Yes correct (only assuming RPI goes up).

You won't benefit from the published figure if it is reversed later in the year.
This is because you are given returns on the annual rate and not the monthly rate.
However one months indication is the best you are gonna get.
I hope that makes sense.

Mickygg

Thanks Lisyloo

I had another thought last night - so am I right in saying that I would be best to invest at the end of the month, because if I invest now I in effect will lose out on interest from now until the end of June?

If I invest now, the 9th June, then this will mature (I plan to only put in for a year) on 9th June 2011. This will therefore only cross 11 RPI changes and not 12 and therefore I will lose out on a months change - is this correct? I only have the money sitting in a 3% account, but I would still rather earn a little interest if I am right in the above and only pay into the Index linked securities at the end of the month.

If this makes sense can someone tell me if I am right here - and that is if you have money earning interest you should only invest in the ILS at the end of the month - as you will earn nothing from now until the end of the month in the ILS?

Thanks

Sceptic001

Mickygg wrote: »

Thanks Lisyloo

I had another thought last night - so am I right in saying that I would be best to invest at the end of the month, because if I invest now I in effect will lose out on interest from now until the end of June?

If I invest now, the 9th June, then this will mature (I plan to only put in for a year) on 9th June 2011. This will therefore only cross 11 RPI changes and not 12 and therefore I will lose out on a months change - is this correct? I only have the money sitting in a 3% account, but I would still rather earn a little interest if I am right in the above and only pay into the Index linked securities at the end of the month.

If this makes sense can someone tell me if I am right here - and that is if you have money earning interest you should only invest in the ILS at the end of the month - as you will earn nothing from now until the end of the month in the ILS?

Thanks

No, you don't lose a month's interest, you always get 12 months on the anniversary of purchase regardless of the time of month you invest. The RPI figure is always published on a Tuesday mid-month (15th June this month). If you are into micro-management you can then take a view on whether it is worth waiting until next month if this month's rise is unusually small. There really is not much in it and if you are planning to cash in after a year you are probably better off jumping in asap so that you have more flexibility about when to cash in when your twelve months are up. That is the time that you can judge whether to cash in or, if there is a large rise in the RPI that month, to hang on for another month.

JamesU

lisyloo wrote: »

Yes correct (only assuming RPI goes up).

Not really correct. Even assuming the RPI goes up, depends on the relative difference between start level/end level RPI in preceeding month vs start level/end level RPI in following month. If the ratios are the same, no benefit irrespective of end RPI levels.

lisyloo wrote: »

You won't benefit from the published figure if it is reversed later in the year.

Published figures are not reversed. What do you mean?

lisyloo wrote: »

This is because you are given returns on the annual rate and not the monthly rate.

Returns are given on a 12mth cycle from a fixed point start level RPI and this is not the same as a return based on the averaged annual RPI inflation over the 12mth period of investment. What do you mean?

lisyloo wrote: »

However one months indication is the best you are gonna get.

Assessment of RPI trend (mth/mth RPI) important as well as timing single purchases between months when RPI figures released.

lisyloo wrote: »

I hope that makes sense.

Discussion on timing purchase between months is a fair approach if trying to optimise returns over a short period relative to a savings account, say over a year, but for those wanting optimised returns to protect against average annual RPI inflation, this is a sub-optimal approach.

JamesU

lisyloo

Not really correct. Even assuming the RPI goes up, depends on the relative difference between start level/end level RPI in preceeding month vs start level/end level RPI in following month. If the ratios are the same, no benefit irrespective of end RPI levels.

You're right to a degree, but as well as looking at months 1 & 2, you also need to look at months 12 & 13 i.e. what happens as the other end, but I don't believe that was the question that was asked or that I was answering.
There may be a benefit to entering as early as possible if you believe RPI trend is down and/or you want the flexibility earlier e.g. you have a BOE linked debt to pay off that's rising. But these are unconnected reasons.

Published figures are not reversed. What do you mean?

I think we are getting tied up in terminology here.
Let me explain.
Let's suppose you start off with RPI at 210 (randomly plucked figure).
Then the month in question it goes up to 220.

What I was saying that you would NOT get the benefit of that if at the end of the year RPI was back down to 210.
So the rise from 210 -> 220 that month has been reversed, so I was pointing out that you may not necessarily get the benefit of the month you've just looked at.
I don't think there's much chance of that happened right now but I thought it fair to point it out.

Sorry if it wasn't clear, hope it is now.

Terminology wise, published figures are not reversed, but GAINS in RPI can be reversed i.e. it can go back down again.
It could even go back down past the start point.

Returns are given on a 12mth cycle from a fixed point start level RPI and this is not the same as a return based on the averaged annual RPI inflation over the 12mth period of investment. What do you mean?

Huh?
I never said it was averaged. Where did that come from?
I said "returns are given on the annual rate" which mean the same as your "Returns are given on a 12mth cycle from a fixed point start level RPI".

Assessment of RPI trend (mth/mth RPI) important as well as timing single purchases between months when RPI figures released.

Couldn't agree more.

Discussion on timing purchase between months is a fair approach if trying to optimise returns over a short period relative

I agree.
I am trying to beat BOE+0.49% (mortgage), so I think it's best to get in as early as possible as BOE will probably rise and RPI probably fall.
As soon as RPI+1% doesn't beat BOE+0.49% I will withdraw and pay off mortgage.
Not everyone has the same aims I agree.

colinfrasp

Hi New to the Forum and have read long threads on the Index linked Certs. Nowhere can I see how these could be shown as currently earning 6.3% as shown in Martin's email. The best I can see in the threads is about 3.7%. Has Martin got this right?