NS&I Index-Linked Savings: Q&A

missile

:kisses: Peace guys. :iloveyou:

I am only playing devils advocate. I merely stated that they have not been as good as a.n.other products over the last three years. They may not be right for everyone, e.g. those who may need access to the cash prior to the 3/5 year anniversary.

I do have £15K in NS&I 3 year index linked certificates and I do intend to roll them over.

IMHO they are worth consideration, but only as part of your portfolio.

StevieJ

missile wrote: »

:kisses: Peace guys. :iloveyou:

I am only playing devils advocate. I merely stated that they have not been as good as a.n.other products over the last three years. They may not be right for everyone, e.g. those who may need access to the cash prior to the 3/5 year anniversary.

I do have £15K in NS&I 3 year index linked certificates and I do intend to roll them over.

IMHO they are worth consideration, but only as part of your portfolio.

Still a reasonable deal providing you see out the first 12 months, whereas 3 or 5 year bonds may have punative cashing in penalties.

ed123_2

...the return is actually 3.92% which for a basic rate taxpayer equates to 4.9% gross

nondom_3

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%.

Thank you Masomnia!!! - that finally clears it up! You're right that the journalists don't explain things correctly (or NS&I either). I ran the calculation I previously quoted with the NS&I advisor and was told it was correct! No wonder I was confused.

As for the comparison calculations (I think someone else asked what I was comparing),as a non-dom I receive gross interest; great, except that I'm also limited to which accounts I can apply for (so far I know of HSBC, NS&I, Investec and Halifax - but with Halifax you can only apply for non-resident accounts from within the UK). So the basic/higher tax rate calculation doesn't apply for me, and I'm merely comparing gross interest rates. If the RPI rose more than 3.75%, then it would be more favorable (and easier to apply for!) than the Halifax 5 yr bond.

Another thing to note is that the NS&I next issue is April 7th. Apparently you can only buy 15K per issue, so the max (because of 3 and 5 year issues) would be 30K before April 7th and 30K after, i.e. 60K max. I don't think that the journalists have made that point clear either.

missile

ed123 wrote: »

...the return is actually 3.92% which for a basic rate taxpayer equates to 4.9% gross

No it is not. It is 3.71% AER. You have not taken into account the effect of compound interest.:eek:

PosterBoy77

At times of low interest rates and high relative inflation, these Index Linked certificates are a very good bet. Inflation does not need to be that high to make them worthwhile. Even more important is the fact that despite what the Bank of England and Government say, they are following inflationary policies. Printing money and devaluation are recipies for inflation. Inflation is likely to carry on for a while yet, so these are very much worth considering.

Also, another thing to be aware of is that for those people whose income is close to the 40% tax threshold, these are a good way to ensure that growing savings and interest from them don't then push someone into being a higher rate tax payer. If earnings income is close to the 40% threshold, it could make quite a bit of sense to keep as much in these certificates as possible, as saving interest from other bonds and accounts could then all end up being taxed at 40%

RayWolfe

... and they are not counted when calculating Age Allowance.

JamesU

nondom wrote: »

Thank you Masomnia!!! - that finally clears it up! If the RPI rose more than 3.75%, then it would be more favorable (and easier to apply for!) than the Halifax 5 yr bond.

[FONT=&quot]Understand what you are trying to calculate now, for 20% taxpayers and 40% taxpayers in the UK the "break even" points between Halifax 4.75% bond and % interest rate required on the NSI certificates are lower, at approximately 2.8% and 1.85%.

But are you sure it is really meaningful to use this figure of 3.75% to compare rates on savings accounts? Or do you think is it more correct to say (until 26th March) I would need the RPI index to reach a value of 228.25 to equal my tax free returns at the Halifax?

JamesU[/FONT]

psychy

Right, i am getting more confused as the discussion goes on.
In short, with low rates and my own assumption of rising inflation, are these IL certs a good investment?
Looking at putting the full £15k in this week as it's earning nothing in my current account.

Masomnia

psychy wrote: »

Right, i am getting more confused as the discussion goes on.
In short, with low rates and my own assumption of rising inflation, are these IL certs a good investment?
Looking at putting the full £15k in this week as it's earning nothing in my current account.

If you expect high inflation, then these certificates will be a good hedge against that.