Accounts that beat inflation

StevieJ

kittie wrote: »

I couldn`t find any and much regret the passing of ns and i index linked certs. I have bought a considerable amount of gilts called NR40 as they pay .625% plus inflation linking. They are in the sipp as I wanted to safeguard some of my dh`s cash. Other than that it is all about risk/reward and also about tying up cash for a longish time without knowing future interest rates and inflation.

I have never used inflation adjusted gilts does the capital amount vary with interest rates i.e. if general interest rates suddenly increased would your capital fall?

lucky77

Reaper wrote: »

I expect it is a misprint and should read "... have a choice of just 1 out of the 55 accounts available"

You could be right but what about the Telegraph writer's assertion "3.88% ...there are 118 savings accounts that offer this" I strongly doubt it!
I have contacted the Telegraph via their website asking them to advise me of even 5 accounts (let alone 55) paying over 5% and will let you know if I get any reply.

Milarky

Two mistakes in relation to this story...

1) The 'inflation' measure is not declared - and arguably it should be RPI, not CPI anyway.

2) [as stated elsewhere] Inflation is a 'backward looking' measure, whereas interest rates look forward. So basing the comparison on what 'inflation' (choose your measure) has been with what rates currently are is wrong.

Note to any journalist given this item to report in future: Please take for comparison 1 Year bond rates from 12 months ago, 2 Year bond rates from 2 years ago (and so on) Yes, I know, where are you going to get that kind of information? That's not my problem, but I suggest a ring around to leading banks press offices asking about their former rates will give a fairly accurate picture....

CynicalJoe

I have been confused (my fault) by some of the comments regarding the NCBS indexed linked savings bond. I thought I’d give it a go. NCBS gives an illustrative return of 4.57% gross p.a. based on RPI from September 2005 to September 2010. This would make £1000 grow to £1252.46 (including the interest of approx. £1.68 added to the capital after the first 6 weeks or so @1.46% before 30 November, when it becomes index linked.

According to my data the RPI increased from 193.1 to 225.3 during the illustrative period, a percentage increase of 16.675%. Adding 50% gives an increase of 25.01% thus giving the £1252.20 or 4.57% p.a. as illustrated. Deducting 20% tax gives a net illustrated figure of £1201.97, a net growth of 3.71% p.a. Had the capital kept up with the RPI alone then it would have been worth £1168.71, 3.13% p.a. The product beats the last five years' RPI inflation by around 0.58% p.a. Not quite as good as NS&I but it only loses when the rate of tax deduction exceeds 33%.

My concern is the lack of access for 5 years. There are already other products giving access with gross rates of 4% or more, granted there are penalties but they do offer the valuable flexibility. Having said that, after much number crunching, I did invest in it, albeit modestly!

Sceptic001

Your calculations are spot-on, CynicalJoe. Comparison with ILSCs is difficult because the terms are so different:

• ILSCs tax-free, NCBS taxable
• ILSCs pay RPI+1%, NCBS pay 150% of RPI

In a nutshell, NCBS is actually better if prices are static or fall over 5 years, paying a guaranteed 7.5% (equivalent to 1.46% gross AER) versus 1% tax-free with ILSCs

NCBS is also better for a basic rate taxpayer if average annual inflation exceeds 2.5% since the 150% escalator overtakes the RPI+1%, even after tax.

Since no-one knows where inflation will go in the next 5 years, the NCBS account looks a reasonable each-way bet if you can tie up your money for 5 years.

Loughton_Monkey

CosmicTen wrote: »

I saw the 3.88% figure on the BBC web site a couple of weeks ago as well. Didn't try and work it out though.

Surely you are not questioning the integrity of the BBC Website?

I am absolutely sure they are intelligent and dilligent people, so much so that I have full faith that they will react quickly to the change of name of Bombay to Mumbai. I think it happened 15 or so years ago, but I am convinced their Stock Market page will catch up before too long.