Index Linked Savings help.....

geordie_ben

Is there a way to work out how much £37500 would be worth if it was put into inxed linked savings 12 years ago with all of the interest applied? a rough estimate will be sufficient...

masonic

You could use this calculator to work it out from 8th October 1999 to present using 5 year investment terms.

geordie_ben

believe it or not i was on that page but was being totally blonde, works out about £76k after te 12 years i reckon

JamesU

geordie_ben wrote: »

believe it or not i was on that page but was being totally blonde, works out about £76k after te 12 years i reckon

I do not think your reckoning is accurate. You are suggesting an average return of approx 6% compounded each year for 12 years (assume average inflation of 5% + approx 1% bonus) and this is certainly not the average rate of inflation over the last 12 years.

You can only work out your end return with ILCs reasonably accurately if you set some criteria:

Assumption 1: the month 12 years ago you invested (but arbitrary because £37,500 is too high to invest in one lump)

Assumption 2: how and when you roll over the investment into new ILCs.

Assumption 3: the bonus rates applicable on the ILCs during the period.

Assumption 4: time of investment at the beginning and during roll over, 3yrs/5yrs etc.

Without defining these parameters, no there is no way to give you a precise figure of your return on investment over 12 years.

Others can argue that you can take an average figure of inflation/yr and get a ball park figure, but it will not be meaningful in any individual case unless you are happy with the end figure +/- 20-30%.

And a link here which discusses some of this. Hope this helps.

JamesU

http://forums.moneysavingexpert.com/showthread.html?t=2340725

trenchwars

If you do as masonic suggests it comes out as £59k so I think your estimate may be on the high side.

Sceptic001

The RPI for Feb 1998 was 160.3
The RPI for Feb 2010 is 219.2
219.2 / 160.3 = 1.3674 (ie. 36.74% increase)
1.3674 x 37500 = £51277.50 (of course this does not take account of any additional interest - currently 1% AER - payable on savings certificates)

masonic

Sceptic001 wrote: »

(of course this does not take account of any additional interest - currently 1% AER - payable on savings certificates)

It also won't take into account the effect of compounding or any 1 year periods where the RPI was negative, but the indexing was not.

C_Mababejive

Not exactly relevant to the OP but useful for others. If you had put £15k into an NSI bond in early Feb 2010 it would now be worth 15,103..before the April valuation period.

JamesU

C_Mababejive wrote: »

Not exactly relevant to the OP but useful for others. If you had put £15k into an NSI bond in early Feb 2010 it would now be worth 15,103..before the April valuation period.

Surely will not know until RPI value for Feb2011?

JamesU

JamesU

Sceptic001 wrote: »

The RPI for Feb 1998 was 160.3
The RPI for Feb 2010 is 219.2
219.2 / 160.3 = 1.3674 (ie. 36.74% increase)
1.3674 x 37500 = £51277.50 (of course this does not take account of any additional interest - currently 1% AER - payable on savings certificates)

Painful to do this, but this one also:

Assumption: RPI start level Feb 1998
Assumption: whole 37.5K invested
Assumption: add 1% bonus on the anniversary each year to keep it easier to calculate (not the staggered incremental bonuses, 0.85 yr one etc)

Real data %RPI for 12 month periods INCLUDING +1% bonus starting from Feb 2008-Feb 2009 are:

3.1, 3.3, 3.7, 2, 4.2, 3.5, 4.2, 3.4, 5.6, 5.1, 1, 4.7% (note: on 12mth anniversary, fine to use %RPI itself rather than RPI differentials). Reliable as original ONS data from within my spreadsheet calculators.

If you compound out the real annual interest rates year on year for the 12 year period (did it twice on the calculator and got the same figure), final value = £57,610


Initial investment of £37,500 with a final value £57,610 over 12 yrs with an average compounded annual interest rate of approx 3.94%.


Notes:

The need to purchase ILCs with a bonus attached is very clear.

If you run this in different months you will get different returns.

This is the best estimate I can come up with. If I have made a mistake somewhere please let me know.

Hope this is useful.

JamesU

geordie_ben

Thanks for all your input people, I'll update this when I get the full calculation