National Counties launch index linked ISA

le_loup

gb01 wrote: »

While that indexation sum (if any) necessarily resides in a crystal ball until Aug. 2015; the illustrative example given by ncbs of "3.96 pc AER tax free" computed on the basis of the increase in RPI experienced between July 2005 & July 2010, as a one-off payment of that amount, would serve in effect to enhance the guaranteed 1 pcpa by less than 1 pcpa (3.96 divided by 5); so the real return on capital initially invested would amount to less than 2 pcpa.

You are aware that inflation was VERY low during that period and for a time was negative? So of course the illustration will show a low return. However, your take on future inflation will be as good as mine (neither of us having a crystal ball).
... your return will be 1% higher than inflation!

gb01_2

My main point is that the experts have not explained it simply and accurately for the layman.

Indeed, the statement "If RPI remains at the current level of 5%, savers will receive interest equivalent to 5.82 % per annum at the end of the 5 year term" appears to me grossly misleading.

But, perhaps I'm wrong.......however, think I'll settle for an alternative of 3 pcpa with only 12 month lock-in.

Sceptic001

gb01 wrote: »

My main point is that the experts have not explained it simply and accurately for the layman.

Indeed, the statement "If [STRIKE]RPI[/STRIKE] inflation remains at the current level of 5%, savers will receive interest equivalent to 5.82 % per annum at the end of the 5 year term" appears to me grossly misleading.

But, perhaps I'm wrong.......however, think I'll settle for an alternative of 3 pcpa with only 12 month lock-in.

Replace "RPI" with "inflation" (see my post #8 above) and the statement is correct. If inflation were to be a constant 5% for the next five years, giving an RPI reading of 285.4 by August 2015, you would get index-linking of 27.6% (5% AER) and additional interest of 1% AER, which added together make an AER of about 5.82% over the term.

Sceptic001

gb01 wrote: »

Thanks for that.
I've now spoken by telephone with ncbs, who have clarified the position.

The deal is:
1. Guaranteed 1 pcpa return, credited annually (in Oct.) & hence compounded; plus
2. One-off payment at maturity (30.09.15) of an indexation sum if (& only if) the RPI figure to be published by the ONS in Aug. 2015 exceeds that published in Aug. 2010.

While that indexation sum (if any) necessarily resides in a crystal ball until Aug. 2015; the illustrative example given by ncbs of "3.96 pc AER tax free" computed on the basis of the increase in RPI experienced between July 2005 & July 2010, as a one-off payment of that amount, would serve in effect to enhance the guaranteed 1 pcpa by less than 1 pcpa (3.96 divided by 5); so the real return on capital initially invested would amount to less than 2 pcpa.

So NOT the inflation-buster which ncbs has promoted in terms which appear to have been misconstrued by the various financial experts/press.

It is not 3.96 divided by 5, it is 3.96% AER. Interestingly, I calculate that the (currently unavailable) NS&I ILSC would have returned about 4.4% AER (also tax free) over the same 5-year period.

And le loup is right that this included a period (most of 2009) when prices as measured by RPI actually fell because of the sudden dramatic fall in mortgage interest costs.

gb01_2

Quote:
It is not 3.96 divided by 5, it is 3.96% AER. I
Unquote:

Sceptic001:
In my conversation with ncbs, they were absolutely clear & were at pains to reiterate that the "3.96%" illustrative figure was an end of term one-off amount and NOT such amount expressed as an annual percentage.

You are at odds with ncbs' interpretation of their own offering.

Sceptic001

gb01 wrote: »

Quote:
It is not 3.96 divided by 5, it is 3.96% AER. I
Unquote:

Sceptic001:
In my conversation with ncbs, they were absolutely clear & were at pains to reiterate that the "3.96%" illustrative figure was an end of term one-off amount and NOT such amount expressed as an annual percentage.

You are at odds with ncbs' interpretation of their own offering.

No, you are misunderstanding what they are telling you. You quote them as saying

the illustrative example given by ncbs of "3.96 pc AER tax free" computed on the basis of the increase in RPI experienced between July 2005 & July 2010, as a one-off payment of that amount

The key here is AER (Annual equivalent rate), which means that the 3.96% is compounded annually. It is not a total of 3.96% over 5 years.

le_loup

Because the increase was that over the illustrative 5 years. Normal type inflation of say 2.5% pa will give you 12.5 (excluding compounding) over the next five years.
It wont be 2.5 pa over the next five years but it doesn't matter what it is because whatever it is will be positive for you: 1% plus five years worth of inflation.
EDIT
Whoops, clashed with Sceptic.

cepheus

I understand this will be withdrawn at 5pm today.

cepheus

If anyone needs a form for this I could send them a copy, they usually accept any applications 'still in the post' after the deadline has closed.

kar999

I had an email chasing my postal application today. They confrimed they are still honouring outstanding applications they sent out.

Cant make my mind up, but I'm hearing more and more about interest rates rising to keep inflation in check which will probably make this investment unattractive in 2 or 3 years time.