NS&I Index-Linked Savings: Q&A

RayWolfe

If you are not sure ... and you're the only one who can decide, put half into NS&I and half in a three year (or 5) high interest fixed rate account.

Biggles

Anyone know what happened to the RPI announcement this month?

Last month was on 16 Feb and this month's was also slated for the 16th according to Digtallook. Assume it may be next Tue now but the 23rd is much later than usual.

MarkFromCornwall

Biggles wrote: »

Anyone know what happened to the RPI announcement this month?

Last month was on 16 Feb and this month's was also slated for the 16th according to Digtallook. Assume it may be next Tue now but the 23rd is much later than usual.

Yes - 23rd March - see the bottom of http://www.statistics.gov.uk/cci/nugget.asp?id=19

Mark

JamesU

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.

Until 23rd March, using NonDoms 4.75% Halifax bond as a benchmark relative comparison, and being a 20% taxpayer......presumably only if you think the RPI will reach 224 in the first year (%RPI=2.8%), then relative change of RPI index in years 2 and 3 are favourable.

And then, assuming you think that inflation is going to rise, I guess the next decision to make is whether or not to fix in at a starting level such as RPI = 217.9.

Maybe it is possible to look at it a different way? If you buy and sell shares, do we prefer to buy them when their price is low or high? We cannot predict the value of shares in the future, but we can decide the price at which we buy them. Because of the calculating mechanism on index linked certificates, do the same rules apply? If so, should one buy certificates when the RPI index is low or high?

JamesU

lisyloo

do the same rules apply?

I would say no.

Your gain on shares is dependent on how much they go up which is dependent on where they start.
When you buy certificates you are dependant on RPI over the next 3-5 years.
What the value is on day 1 doesn't have much effect.

Obviously, I hope someone will correct me if I'm wrong.

I am sseing it as purely depends on RPI figures.
I got an average of
2.9 for 2010
3.0 for 2011
when checking independent forecasts on the HM treasury site.

I am thinking of drawding down on my mortgage (0.99) and expecting to make a gain over 3 years.

JamesU

lisyloo wrote: »

I would say no.
When you buy certificates you are dependant on RPI over the next 3-5 years.
What the value is on day 1 doesn't have much effect.

Masomnia in thread: 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%.

If in Jan 2009 the RPI was 217.9, what % return would you get at the end of Year 1? Have I overlooked something here?

JamesU

StevieJ

JamesU wrote: »

lisyloo wrote: »

I would say no.
When you buy certificates you are dependant on RPI over the next 3-5 years.
What the value is on day 1 doesn't have much effect.

Masomnia in thread: 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%.

If in Jan 2009 the RPI was 217.9, what % return would you get at the end of Year 1? Have I overlooked something here?

JamesU

Presumably Zero inflation +.85% = 0.85%. Thus still outperforming RPI.

lisyloo

Ok, in theory you should always buy when prices are low, however for RPI this is really a NON issue for two reasons.

Share prices are highly volatile and could rise/drop100% on as little as a rumour.
The gains/losses that stand to be made a large.
Plus whatever is causing that gain/loss can appear/dissapear at the drop of a hat.

RPI is realtively unvolatile although of course it can change.
Also whatever is causing it to be high/low usually does not appear/disappear over night. It's normally some sort of longer trend e.g. rising food price, declining energy prices, rather than an overnight rumour.
It's very unlikely you'd be able to buy low and then get high for three years.
If you buy low then because of the longer term trend, you'd be stuck with that for at least some of the 3/5 years. Whereas you could buy a share low, but price changes overnight.

Personally I think it's a NON issue although I would agree that there are good and bad times to buy. This has more to do with the 3/5 year outlook than the price on day 1 to my mind.

JamesU

StevieJ wrote: »

JamesU wrote: »

Presumably Zero inflation +.85% = 0.85%. Thus still outperforming RPI.

StevieJ, Could you do the same calculation with a RPI of 214.1 (average RPI Nov 07- Oct 08, just before Dec 08 when deflation started). What % would you get?

JamesU

JamesU

StevieJ wrote: »

JamesU wrote: »

Presumably Zero inflation +.85% = 0.85%. Thus still outperforming RPI.

Average RPI (Nov 07- Oct 08) = 214.1

Ok, calculator in hand: (217.9 - 214.1)/217.9 *100 + 0.85 = 2.59%

So if the RPI was 217.9 in January 09, 0.85% from certificates at end of Year 1
If the RPI was 214.1 in January 09, 2.59% from certificates at end of Year 1

Conclusion: the RPI varies from month to month, and if you lock in at a lower starting RPI you would expect a higher rate of interest at the end of Year 1 (e.g. 2.59% instead of 0.85%).

Is this correct? Yes or No?

JamesU