MSE News: How to beat inflation - earn 7.9% on your savings

JamesU

Sceptic001 wrote: »

PROGRESS CHAPS!!!

The 7.9% banner has disappeared. Now if we can get the 6.3% headline replaced with something like "inflation (5.3% last year) plus 1%" it will be a job well done.

Well if MSE Dan is able to address the last couple of posts here, we may be home and dry. Hope.....:)

http://forums.moneysavingexpert.com/showpost.html?p=33221811&postcount=15

http://forums.moneysavingexpert.com/showpost.html?p=33222831&postcount=16



JamesU

cwcw

Can someone please explain to me exactly how this works? I've been on the website and read all 4 pages of this thread and I'm still not 100% clear. I think a lot of the posts have focused on the obvious point of not being able to predict RPI, but not on what actually happens with this account.

So....... if I were to get a certificate for 3 years and invested £10,000 in it, now, and in May 2011 RPI was hypothetically 5%, I would get 6% tax free for the year, i.e. £600. That's simple enough.

Now, does that £600 go with the £10,000 to form £10,600 for the 2nd year, on which the RPI for May 2012 would be paid? i.e. is it cumulative? Or is the £600 paid out to another account and the £10,000 remains for year 2? Or if you hold the certificate for the term of 3 years, are the 1st and 2nd year RPI figures actually irrelevant, i.e. the RPI in May 2013 would be applied to the original balance for all 3 years? Or is it the cumulative RPI figure using the relative index over the full 3 years? e.g. RPI index year 0 = 100, year 1 = 105, year 2 = 110, year 3 = 101, so a 1% rise in inflation over 3 years despite years 1 and 2 having bigger rises, so a 1% + 1% = 2% rate applied to the £10,000 for the whole 3 years?!

I guess what would be useful is if this hypothetical (no need to explain nobody can predict the future) example was completed:

Investment date: May 2010
Starting balance: £10,000

RPI May 2011 = 5% + 1% bonus = 6% interest = £600
Year 1 closing balance = £10,600

Balance carried forward = ??
RPI May 2012 = 4% + 1% bonus = 5% interest = ??
Year 2 closing balance = ??

Balance carried forward = ??
RPI May 2013= 3% + 1% bonus = 4% interest = ??
Year 3 final closing balance = ??

Sceptic001

Yes, the interest is cumulative and is added to the certificate annually.

cwcw

Sceptic001 wrote: »

Yes, the interest is cumulative and is added to the certificate annually.

Ok, but what about the index linking? Is it relative to the start of each year, or relative to the start of the term when the end is reached? e.g. would a starting index of 100 and a year 3 index of 99 only give you 1% for all 3 years, even if year 1 and 2 saw massive index rises? Or would the massive rises apply to years 1 and 2, and then the 1% to year 3 only?

Sceptic001

The certificate is revalued on each anniversary. Each year is calculated separately. If prices actually fall in any one year period (as happened in several months last year) you get the bonus but no reduction.

poppy10_2

cwcw wrote: »

I guess what would be useful is if this hypothetical (no need to explain nobody can predict the future) example was completed:

Investment date: May 2010
Starting balance: £10,000

RPI May 2011 = 5% + 1% bonus = 6% interest = £600
Year 1 closing balance = £10,600

Balance carried forward = ??
RPI May 2012 = 4% + 1% bonus = 5% interest = ??
Year 2 closing balance = ??

Balance carried forward = ??
RPI May 2013= 3% + 1% bonus = 4% interest = ??
Year 3 final closing balance = ??

It's a bit more complicated than that. You don't get 1% bonus each year, you get 0.85% on the original amount as a bonus the first year, then 0.95% of the 1st anniversary value the next year, and 1.21% of the second anniversary value the final year. Works out as 1% AER in the end.

Here's your example filled out:

Investment date: May 2010
Starting balance: £10,000

RPI May 2011 = 5% + 0.85% bonus = 5.85% interest = £585
Year 1 closing balance = £10,585

Balance carried forward = £10,585
RPI May 2012 = 4% + 0.95% bonus = 4.95% interest = £524
Year 2 closing balance = £11,109

Balance carried forward = £11,109
RPI May 2013= 3% + 1.21% bonus = 4.21% interest = £468
Year 3 final closing balance = £11,577

Total interest paid=£1,577 (15.77%) over three years, equivalent to 5.0% AER.

Paul_Herring

New article: http://www.moneysavingexpert.com/news/banking/2010/05/how-can-savers-beat-19-year-high-inflation

Strangely no link to post comments about it, however, and I found this bit somewhat galling, in light of the article that started this thread:

Why is there confusion over the rates paid?

There has been some confusion around what this account pays, mainly distributed by Post Office staff who sell this product, according to emails we have received from staff and customers.

Some consumers are being told the account pays the difference between today's annual RPI inflation figure (5.3%), and whatever it is in a year, plus the bonus.

So, if the annual RPI measurement stands at 6.3% in 12 months, and given the bonus in year one is 0.85%, that suggests you'll earn 1.85% on your cash tax-free.

NS&I has confirmed this is not true. The bank insists the problem with mis-information is not widespread but says it will investigate evidence we've provided to ensure all Post Office branches are giving the correct advice.

Now where would people get such an idea?

Perhaps someone at Moneysaving Towers would like to explain where they got 7.9% from.

Rollinghome

Paul_Herring wrote: »

Now where would people get such an idea?

Ho ho ho.

Perhaps MSE will follow their highly successful campaign of misinformation to create total confusion on the return with further confusion on how much can be held in NS&I indexed linked:

How does the NS&I account work?
NS&I's index-linked savings, where you can save between £100 and £15,000,...

The reality MSE is that you can save up to £15,000 per issue, and therefore considerably more than £15k.

JamesU

Rollinghome wrote: »

Ho ho ho.

Perhaps MSE will follow their highly successful campaign of misinformation to create total confusion on the return with further confusion on how much can be held in NS&I indexed linked: The reality MSE is that you can save up to £15,000 per issue, and therefore considerably more than £15k.

Errors on errors....I mentioned the same thing on per issue in a suggested rewrite here:

http://forums.moneysavingexpert.com/...1&postcount=16


Penny may drop one day

JamesU

Sceptic001

Yes, it is somewhat disingenuous to blame a couple of alleged conversations with post office clerks for confusion over rates paid when this site still incorrectly states on the main page "Top Savings Account: 6.3% tax free" and as recently as 19th May headlined an article "How to beat inflation: earn 7.9% on your savings".

It is surely not beyond the wit of MSE to come up with a headline such as "Top Savings Account: Inflation (5.3% last year) + 1% tax free" which is not blatantly misleading.