We'd like to remind Forumites to please avoid political debate on the Forum. This is to keep it a safe and useful space for MoneySaving discussions. Threads that are  or become  political in nature may be removed in line with the Forum’s rules. Thank you for your understanding.
NS&I Saving Certificates
lindabea
Posts: 1,486 Forumite
A question regarding the interest rate for the indexlinked certificates. If the RPI is 3.4% (I think that's the current rate), and assuming there is no change in the RPI during the next 3 years, (just to illustrate my point), am I right in thinking that the capital invested will earn an interest rate of 3.4% + 1% over the 3 years. Can someone please explain how the interset rate is worked out as I am completely confused with this type of investment.
Before doing something... do nothing
0
Comments

NS&I use RPI not CPI. Today's RPI figure is 4.4%. In the (unlikely) event that RPI increase is 4.4% for each of the next three years you would indeed receive 5.4% per annum (compounded, tax free), making indexlinked certificates very attractive for anyone who thinks inflation is here to stay.0

A question regarding the interest rate for the indexlinked certificates. If the RPI is 3.4% (I think that's the current rate), and assuming there is no change in the RPI during the next 3 years, (just to illustrate my point), am I right in thinking that the capital invested will earn an interest rate of 3.4% + 1% over the 3 years. Can someone please explain how the interset rate is worked out as I am completely confused with this type of investment.
The current rate as of today is %RPI = 4.4% but this refers to previous 12months and is not the rate you will get in the next 12 months.
It can be confusing. Read through the link here, including some worked examples towards the end (e.g. my post 86 in the thread).
http://forums.moneysavingexpert.com/showthread.html?t=2340725
Also worth reading through:
http://forums.moneysavingexpert.com/showthread.html?t=2382861
Hope these help to clarify.
JamesU0 
>I am completely confused with this type of investment.<
Your best bet is to d/l the Excel spreadsheet from the NS&I website that shows how the index (which was baselined at 100 in 1947) ticks up month by month (assuming RPI is +tive) and how that index (not any months RPI %tage) is used to calculate the return on the bonds.
Any discussion on indexlinking needs a comment that the BoE staff pension fund is heavily invested in index linked and the LibLab pact govt in 1977 saw inflation spiral to 25%!0 
A question regarding the interest rate for the indexlinked certificates. If the RPI is 3.4% (I think that's the current rate), and assuming there is no change in the RPI during the next 3 years, (just to illustrate my point), am I right in thinking that the capital invested will earn an interest rate of 3.4% + 1% over the 3 years. Can someone please explain how the interset rate is worked out as I am completely confused with this type of investment.
If there is no change in the RPI, then Index Linking would be zero%, add on 1% and you would get 1%?
Is that right? Do you get the RPI figure, or the change in RPI (i.e. the amount of inflation)? Plus 1%, of course...
Edit  Masomnia has answered this here http://forums.moneysavingexpert.com/showpost.html?p=30928695&postcount=24 (thx JamesU for the page link)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.You've never seen me, but I've been here all along  watching and learning...:cool:0 
LongTermLurker wrote: »I'm not sure if this has been missed, or if I'm wrong, but JamesU has touched on it with "this refers to previous 12months and is not the rate you will get in the next 12 months."
If there is no change in the RPI, then Index Linking would be zero%, add on 1% and you would get 1%?
Is that right? Do you get the RPI figure, or the change in RPI (i.e. the amount of inflation)? Plus 1%, of course...
Edit  Masomnia has answered this here http://forums.moneysavingexpert.com/showpost.html?p=30928695&postcount=24 (thx JamesU for the page link)
LongtermLurker, Yes, you are right.
Example posted for last month:
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, (211.4211.4)/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%
(where 219.2/211.4 = 1.0368 equiv to %RPI = 3.7%)
OR, alternatively, (219.2211.4)/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.
JamesU0 
They should change the nomenclature and use RPI to refer to the INDEX, and RPIC (or something) to refer to the %age change relative to 12 months previous. That would stop a lot of the confusing c**p that gets people when everyone talks about the RPI figure.0

I'm posting my first NSandI index linked application tomorrow. My guess is that inflation will rise faster than interest rates.
ETA: Better still, just applied online  very easy.
GGThere are 10 types of people in this world. Those who understand binary and those that don't.0 
This sounds like really complicated stuff, but many thanks to Jamesu for your explanation. I think I have a better understanding now, but still not completely sure. So if I were to invest in April 2010, the start RPI (SRPI) will be published in May 2010. Then I would have to wait until May 2011 for the end RPI (ERPI). To calculate the return on my investment of say 10K, the formula would like like this:
10K* ((ERPISRPI)/SRPI*100) + 1%
I don't know what 0.85, 0.95 and 1.21 mean, but i have seen these figures in the NS&I website and Jamesu also made references to them. Can someone please explain further and am I right in my understanding.Before doing something... do nothing0 
There are 10 types of people in this world. Those who understand binary and those that don't.0

If you invest in April the SRPI will be the value published in March which relates to prices in February which is 219.2.
If the index 12 months later the index is (say) 228.5, that would be a 4.24% inflation.
((ERPISRPI)/SRPI*100) = 4.24
or the same thing another way (ERPI/SRPI)1 = 0.0424
Your interest for the year will be 4.24 plus 0.85 = 5.09%.
The certificates have a three year term, year 1 you get +0.85, yr 2=0.95, yr3=1.21, total over the 3 yrs avreages to +1.00%.0
This discussion has been closed.
Categories
 All Categories
 346.5K Banking & Borrowing
 251.3K Reduce Debt & Boost Income
 451.3K Spending & Discounts
 238.7K Work, Benefits & Business
 614.1K Mortgages, Homes & Bills
 174.7K Life & Family
 251.9K Travel & Transport
 1.5M Hobbies & Leisure
 16K Discuss & Feedback
 15.1K Coronavirus Support Boards