NS&I Index-Linked Savings: Q&A

missile

I am not sure what is likely to happen in the future, but I can tell you what has happened in the past :A

I put £15,000 in a 3 year NS&I savings cert and have just received the valuation for anniversary on 27 March 2010 = £16,765.37.

I calculate the AER to be 3.71%

Standard rate tax payer, I calculate that I would have been better with a bond paying 4.41%

A higher rate tax payer would need to achieve 5.1%

missile

The rates on offer for re-investment do not look very generous to me.
Year1 RPI + 0.85%
Year 2 RPI + 0.95%
Year 3 RPI + 1.21%

If RPI averages circa 3.5% over the next three years, Nationwide 3 year fixed rate cash ISA looks to be a better offer @ 4.40%

If RPI continues to climb, then NS&I offer would be better.

Masomnia

dov wrote: »

It's RPI + 1%. Not sure where you or karen got the word change from.

I'm with JamesU, I have no idea where you've got that calculation from or what it means.

The figure they give for RPI like 3.7% or whatever is the change between the month the data is quoted for and the same month the year before.

RPI is an index, and it is represented by a number, it starts in June 1947 as 100, and then as prices rise the indexation number rises with it. So the change in the index number between years is what is represented by the percentages. This is what is meant by 'change' in RPI, not the difference between the percentages, but the change in the index, as is represented by the percentage.

Not sure if that's clear...

Edit: So for example,

The RPI figure for January 2009 was 210.1, and for January 2010 it was 217.9, so the 'change in RPI' was 7.8, or an increase of 3.7%.

ses6jwg

missile wrote: »

The rates on offer for re-investment do not look very generous to me.
Year1 RPI + 0.85%
Year 2 RPI + 0.95%
Year 3 RPI + 1.21%

Nationwide 3 year fixed rate cash ISA looks to be a better offer @ 4.40%

You are missing the point of inflation linked bonds.

missile

ses6jwg wrote: »

You are missing the point of inflation linked bonds.

I do understand the point of inflation linking. That is why I invested in them .

There are no easy choices and index-linking is not a silver bullet. Other savings products have given me better returns in the past. IMHO, it is best to have a balanced portfolio.

ses6jwg

missile wrote: »

I do understand the point of inflation linking. That is why I invested in them .

There are no easy choices and index-linking is not a silver bullet. Other savings products have given me better returns in the past. IMHO, it is best to have a balanced portfolio.

I think that is the key here.

These bonds make up about 12% of mine.

About 40% in equities and rest in cash ISAs

dov

Masomnia wrote: »

The figure they give for RPI like 3.7% or whatever is the change between the month the data is quoted for and the same month the year before.

RPI is an index, and it is represented by a number, it starts in June 1947 as 100, and then as prices rise the indexation number rises with it. So the change in the index number between years is what is represented by the percentages. This is what is meant by 'change' in RPI, not the difference between the percentages, but the change in the index, as is represented by the percentage.

Not sure if that's clear...

Edit: So for example,

The RPI figure for January 2009 was 210.1, and for January 2010 it was 217.9, so the 'change in RPI' was 7.8, or an increase of 3.7%.

Thanks for the explanation but I still don't get nondom point:

nondom wrote: »

As inflation recently jumped to 3.7pc, now would be a really bad time to apply (like buying at the top of the market), unless of course you expect inflation to keep on rising even higher.

To beat 4.75% gross (in a 5 year bond with Halifax), inflation would have to average over 7.45% in the same period (if I was to invest now into a 5 year NS&I issue).

Am I correct in this thinking? Do people really think it's a possibility that inflation could get this high? (and stay this high for 5 years?!)

If inflation based on RPI were to average 2% over 5 years then you would get 3% which is equivalent of 5% for high rate tax payers which would beat the 4.75% 5 year halifax bond. So what's the 7.45% rate nondom is referering to?

Masomnia

dov wrote: »

If inflation based on RPI were to average 2% over 5 years then you would get 3% which is equivalent of 5% for high rate tax payers which would beat the 4.75% 5 year halifax bond. So what's the 7.45% rate nondom is referering to?

The 7.45% figure would be right if 'RPI change' meant the change between the percentages; which is understandable as journalists who don't really know the ins and outs of things will report that 'RPI is 3.7% and it was 2.4% last month', which isn't technically correct, so it's an easy mistake to make. That's where the confusion has come from I think.

StevieJ

missile wrote: »

I am not sure what is likely to happen in the future, but I can tell you what has happened in the past :A

I put £15,000 in a 3 year NS&I savings cert and have just received the valuation for anniversary on 27 March 2010 = £16,765.37.

I calculate the AER to be 3.71%

Standard rate tax payer, I calculate that I would have been better with a bond paying 4.41%

A higher rate tax payer would need to achieve 5.1%

But you can only put 3600/5100 in a cash ISA so you can use both.

Rollinghome

missile wrote: »

I am not sure what is likely to happen in the future, but I can tell you what has happened in the past :A

That is the problem.

You could have fixed rate savings, index-linked savings that pay slightly above the rate of inflation no matter what, or variable rate savings that could be the winner if rates suddenly rise but inflation stays low. Unfortunately you can't tell for sure which would have been best except with hindsight. That's why many people like to spread between all three. The odds are increased in favour of IL certs for higher rate tax payers.