NS&I Saving Certificates

lindabea

Lansdowne wrote: »

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.

((ERPI-SRPI)/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%.

Thanks Lansdowne - I think I'm beginning to understand this. But I want to clarify 1 more thing. It would appear that the indexation used is that of 2 months prior to the month when the investment is made. Is my understanding correct? Is there any particular reason why 2 months prior and not the same month as the investment month.

Honkycat

So, is now a good time to buy or is it better to wait for a lower index?

sabretoothtigger

making index-linked certificates very attractive for anyone

Its not so much that NSI will be very attractive but every savings alternative would be very unattractive

It is only 1% on top of inflation after all, if we have 5% inflation for 3 years that is a bad thing and nsi certs would avoid it


Also the current argument is that 4.4% rpi is temporary and it will not be sustained every month for 3 years. I know what I think but its true it could vary either way

Using the rate of RPI for January 2010 (3.7pc), if you invested in Inflation Beating Savings last March you would have needed a return of 5.7pc as a basic-rate taxpayer, or 7.6pc as a higher-rate taxpayer, to obtain an equivalent return on your savings.

http://www.telegraph.co.uk/finance/personalfinance/savings/7448715/NSandI-Index-Linked-Savings-QandA.html

Sceptic001

lindabea wrote: »

Thanks Lansdowne - I think I'm beginning to understand this. But I want to clarify 1 more thing. It would appear that the indexation used is that of 2 months prior to the month when the investment is made. Is my understanding correct? Is there any particular reason why 2 months prior and not the same month as the investment month.

It is a question of logistics. When NS&I calculate the repayment value, the latest RPI figure available relates to two months prior to the actual maturity date. For instance, repayments due in May will use the figure published today (April) which reflects the rate of inflation in March. So the initial RPI has to be two months in arrears. Purchases made in April use the February RPI (219.2). Purchases in May will use the March RPI published today (220.7).

artha

Honkycat wrote: »

So, is now a good time to buy or is it better to wait for a lower index?

I was wondering the same thing. As I understand it the figure for the month in which you buy is important (can anyone confirm?). If the latest figure is a high blip then inflation will have to continue to rise for the first anniversary valuation to show a gain. If inflation continues at this rate then surely that will signal a move to higher base rates and general savings rates will follow(?).

arjar

Does anyone know where I might find a list of the rates offered on index linked certificates in the past? I'm curious to know what the trend has been in the amount offered in excess of inflation for successive issues, and whether this has any relatonship to the direction of travel for inflation at that time.

Cheers

Consumerist

artha wrote: »

I was wondering the same thing. As I understand it the figure for the month in which you buy is important (can anyone confirm?). If the latest figure is a high blip then inflation will have to continue to rise for the first anniversary valuation to show a gain. If inflation continues at this rate then surely that will signal a move to higher base rates and general savings rates will follow(?).

The RPI index published in the month before purchase is the index used to establish the value of the certificate at the first aniversary. At that point the indexing and fixed interest during the first year become built-in. To that extent, the RPI in the first month is important.

Trying to pick a point at which to invest is rather like trying to pick a point at which to invest in shares. Unless you can see the future, you can only guess at which way a price will go.

It is reasonable to expect Bank Rate to move higher if inflation continues. The question is - will interest rates on savings keep pace with inflation? Bear in mind that, at the moment, some instant-access savings rates are around 2.5% while Bank Rate is only at 0.5%. It might not be reasonable to assume that these sorts of rates will keep pace with changes in Bank Rate in the same way that rates of 0.5% might.
.

Consumerist

arjar wrote: »

. . . I'm curious to know what the trend has been in the amount offered in excess of inflation for successive issues, and whether this has any relatonship to the direction of travel for inflation at that time.

I was curious about this too.

There may be a record of past interest rates but I couldn't find the info in any one place. I can give you the limited info I have, as follows :-

3yr issue 20 from 07 Apr 2010 @ indexing + 1.00% AER.
5yr issue 47 from 07 Apr 2010 @ indexing + 1.00% AER.

3yr issue 19 from 29 Apr 2009 @ indexing + 1.00% AER.
5yr issue 46 from 29 Apr 2009 @ indexing + 1.00% AER.

3yr issue 18 from 18 Jun 2008 @ indexing + 1.00% AER.
5yr issue 45 from 18 Jun 2008 @ indexing + 1.00% AER.

3yr issue 17 from 21 May 2008 @ indexing + 0.70% AER.
5yr issue 44 from 21 May 2008 @ indexing + 0.70% AER.

3yr issue 16 from 02 Apr 2008 @ indexing + 0.25% AER.
5yr issue 43 from 02 Apr 2008 @ indexing + 0.35% AER.

3yr issue 15 from 25 Apr 2007 @ indexing + 1.35% AER.
5yr issue 42 from 25 Apr 2007 @ indexing + 1.35% AER.

3yr issue 14 from 26 Oct 2006 @ indexing + 1.15% AER.
5yr issue 41 from 26 Oct 2006 @ indexing + 1.10% AER.

I can't be sure it's accurate but hope this helps.
.

duggo1

My H is a higher rate tax payer (well 40% not the new 50%) so I think these would be good for him. He currently has £17K in a lloyds incentive saver paying about 3%. Am I right in thinking these are much better? I realise the rates can change but isn't it equivalent to about 9% rate on a taxed account?

StevieJ

duggo1 wrote: »

My H is a higher rate tax payer (well 40% not the new 50%) so I think these would be good for him. He currently has £17K in a lloyds incentive saver paying about 3%. Am I right in thinking these are much better? I realise the rates can change but isn't it equivalent to about 9% rate on a taxed account?

No brainer for HR taxpayer.