NS&I Index-Linked Savings: Q&A

Masomnia

As I understood it, the point he was making was that the account doesn't pay 3.7%, it will pay the difference between what RPI is when you take out a certificate and what it is at the end of the term. To say NS & I are paying 3.7% is misleading, because that only applies to certificates taken out for that particular year, which is already gone.

StevieJ

Biggles wrote: »

".. 1% plus (inflation as measured by) RPI is absolutely correct.

Danny was trying to cover the situation when there may be deflation (though that is covered in the NS&I's terms), in which case the payment would never be less than the 1%, in other words you will never get 1% minus (deflation as measured by) RPI.

So these certificates perform best in a deflationary environment, then again the same could be said for most saving products.

JamesU

Quietmanc wrote: »

danny_28's post above has really confused me now.I actually opened a 3 yr Index linked account with NS&I this morning,and during the process,the lady I was speaking with went through 'things I should know'.Loss of interest for early withdrawals etc. and finished off her little speech with "This account pays an interest rate of 1% plus RPI"

Are you still confused, or is it clearer now?

JamesU

amcluesent

>It is important to note that the rate received was not 1% plus RPI.<

So, are you really trying to say that if inflation stayed at exactly 10% for 36 months, then the return to savers with 3-year index-linked bonds would be 1% :rotfl:

JamesU

amcluesent wrote: »

>It is important to note that the rate received was not 1% plus RPI.<

So, are you really trying to say that if inflation stayed at exactly 10% for 36 months, then the return to savers with 3-year index-linked bonds would be 1% :rotfl:

No, what Danny was trying to explain was that because of deflation LAST YEAR where:


% RPI = 0% to -0.8% between FEB 2009 - OCT 2009,

and, from NOV 2008 RPI = 216, then RPI dropped and the RPI did not reach 216 again until NOV 2009,

investors on their annual anniversary payments in these months would not receive any interest other than their guaranteed bonus. In fact it is all those investors whose start RPI date was between FEB 2008 - OCT 2008 and they would only receive a bonus and no interest in that 12 month period.

You need to read the whole of his quote, and not part of it:

Danny: Therefore, with the example of last year, inflation went down and so only 1% was received. It is important to note that the rate received was not 1% plus RPI.

And the reasoning about 10% over three years giving only 1% does not stand at all. When deflation started the % RPI was actually 4.1% (rather than your example 10%) and yes, you will get interest after the deflationary period, according to the RPI on the next anniversary date.

Below is how it works with the real ONS data for RPI and %RPI values. Important: the % RPI at the time you buy ILCs (e.g. 4.1% in the example below) refers to % RPI inflation in the12 months previously and IS NOT the % return received in the next 12 months.

Example:
Start date of 3yr certificates Feb 2008:

Feb 2008: RPI = 211.4, % RPI = 4.1% (NOT the starting interest +1%)
Feb 2009: RPI = 211.4, % RPI = 0.0% (hence no interest, deflation)
(where 211.4/211.4 = 1.0000 equiv to %RPI = 0%)
(OR, alternatively, (211.4-211.4)/211.4*100 = 0%)

% Year 1 return = 1% (assume change in RPI + 1%)

Feb 2009: RPI = 211.4, % RPI = 0%
Feb 2010: RPI = 219.2, % RPI = 3.7% (today’s figures, 23rd March 2010)
(where 219.2/211.4 = 1.0368 equiv to %RPI = 3.7%)
OR, alternatively, (219.2-211.4)/211.4*100 = 3.7%)

% Year 2 return = 4.7% (assume change in RPI + 1%)

Feb 2010: RPI = 219.2, % RPI = 3.7%
Feb 2011: RPI = XXX, %RPI = X%

% Year 3 return = X%

The interest you receive is the change in RPI + 1%, year on year as in the calculations above (really + 0.85%, 0.95%, 1.21%). Note: these figures are only for February, different figures for other months. Note also: THIS DOES NOT MEAN that the ILCs are now returning 4.7%, they are not. This % return in Year 2 was due to the low RPI = 211.4 during start of deflation relative to today's Feb 2010 RPI figure of 219.2. The % return in Year 3 will depend on the RPI value in Feb 2011.

Hope this helps.

JamesU

Biggles

Anyone tried the online calculator today?

It claims to have been updated but it says the latest RPI figure was announced 25 Mar (it was actually 23 Mar), and the resulting valuation is exactly the same as last month (for certs bought in Mar & Apr 09), even though the RPI just went up from 217.1 to 218.4.

Mazcabs

Hi all

Dont know if any of you can help but my MIL set up a NS&I Index linked Savings Certificate for my oldest son in 2007 for £100 and it is coming up for renewal/ reinvestment. She has also given me £100 to do a similar thing for my youngest son.

I am trying to decide whether to just reinvest in same certificate or go for a fixed interest savings certificate or even a Childrens Bonus bond. I wont be bothered about taking the money out in the near future and using it so it can go in for say one of the 5 year ones...

Any ideas please...thanks

JamesU

Biggles wrote: »

Anyone tried the online calculator today?

It claims to have been updated but it says the latest RPI figure was announced 25 Mar (it was actually 23 Mar), and the resulting valuation is exactly the same as last month (for certs bought in Mar & Apr 09), even though the RPI just went up from 217.1 to 218.4.

Biggles, they should be almost exactly the same........

Jan 09-10: (217.9 / 210.1) = 1.0371 equiv to % RPI for Jan 10 = % return = 3.7% (ex bonus)......for March 09 ILCs

Feb 09-10: (219.2 / 211.4) = 1.0368 equiv to % RPI for Feb 10 = % return = 3.7% (ex bonus)...... for April 09 ILCs

(where: underlined = RPIs for 2009, and bold = RPIs for 2010)

JamesU

ManAtHome

My April 09 ones have gone up (unless I recorded the numbers wrongly last month..) - won't work if you're trying to compare March 09 to 'now' against April 09 to 'now' as there wasn't much change between March and April 09.

moana

Can someone tell me the answer to this.
If I buy 1000 quid of NSI now at 1% above RPI.

Assuming RPI stays at 4% for next 3 years.
How much will I get back after the 3 year period.

I don't pay income tax.

Thanks.