MSE News: Post Office to launch inflation-beating savings

Former_MSE_Guy

This is the discussion thread for the following MSE News Story:

"The Inflation Linked Bond will ensure some savers better the rise in the cost of living over the next five years ..."

Read the full story:
Post Office to launch inflation-beating savings

ic451uk

MSE_Guy wrote: »

"The Inflation Linked Bond will ensure savers better the rise in the cost of living over the next five years ..."

Unless you're a tax-payer, of course, in which case it won't - as the taxman will swipe a proportion of the "inflation-linking". This is why the NS&I Index-Linked Savings Certificates worked and were so popular - they were tax exempt, so they did beat inflation.

Which is paradoxically why NS&I had to stop selling them, as they were better than most fixed term savings bonds. Only problem is, if NS&I reinstate them, there'll be so much pent-up demand they'll sell £billions overnight - and promptly have to withdraw them from sale again.

It is a little bit unfair of the Post Office to launch a product that sounds a bit like the NS&I one, given that the Post Office is one of the main NS&I channels. What are the chances that some confused depositors go for the Post Office product not realising that it's not the NS&I one? Obviously everyone here on MSE is far too switched on to fall for that!

IC

SnowMan

Thanks for the news item, it looks a good account.

Of course people will think of it as RPI+1.5% and it is important to note that is completely wrong. The RPI + 1.5% looks like a deliberate attempt by the Post Office to mislead in my view. We'll have to see how it is marketed next week.

In fact because no interest is paid on interest it brings it down to RPI + 0.8% if inflation is 5% pa over the 5 year period.

If inflation is 9% over the period it becomes RPI - 0.2% so it doesn't beat inflation at all for a non-taxpayer. So it isn't GUARANTEED to beat inflation on the info available. Although that said it is likely to be a very good account to have if inflation is 9%.

The account term doesn't start until 26 May so the money may only get a poor rate until then which may make the account worse than it seems also.

dggar

If I'm calculating this correctly the example for the Post Office of £3250 would pay (£3250*0.8)=£2600 for an ordinary rate tax payer.

It would seem that the Yorkshire account based on an ISA might be a better bet.

dggar

A further thought:

If inflation (RPI) is 5% for this year but gets back to target of 2% for the following 4 years the Post office payout would be £2050

If inflation was 0% in the following 4 years the payout would be £1250.

alanq

Link in OP has an unwanted space in its URL and so does not work.

This is what is required.
http://www.moneysavingexpert.com/news/banking/2011/02/post-office-to-launch-inflation-beating-savings

"Using the example of a deposit of £10,000 and an annual RPI increase of 5% each year of the five-year fixed term, this is what the inflation-linked accounts would pay before tax is deducted:

• Post Office. £3,250.
• Yorkshire account 2. £2,962 (including introductory offer).
• Birmingham Midshires. £2,625.
• Yorkshire account 1. £2,600 (with introductory offer)" N.B. The Yorkshire accounts are also available as cash ISAs.

Consumerist

The launch announcement comes after it was announced this week RPI hit a two-year high of 5.1% in January.

According to ONS data, RPI inflation was 5.3% in April and 5.1% in May last year. Then you need to go back to July 1991 for RPI inflation to be above 5.1%.

Don't know where this "two-year high" comes from.

Loughton_Monkey

Let's not forget that - assuming no more VAt increases for a while - then RPI inflation will drop next January by around 2% compared with what it would otherwise have been.

Do we have any 'moles' in the Post Office?

If "Merv" buys some himself, then "I'm in".

VT82

I can't get over the non-compounding nature of it. I can understand why they don't want to offer a compounding option - it would be impossible to accurately hedge with derivatives if they were to compound at an unknown annual pay-rate. But if they don't want to offer it, then they should pay the the annual interest to the customer, not keep it for themselves paying no interest!

What a con!!!

john_s_2

VT82 wrote: »

I can't get over the non-compounding nature of it. I can understand why they don't want to offer a compounding option - it would be impossible to accurately hedge with derivatives if they were to compound at an unknown annual pay-rate. But if they don't want to offer it, then they should pay the the annual interest to the customer, not keep it for themselves paying no interest!

What a con!!!

Bit strong. It is what it is. It pays simple interest, and your capital and interest is locked away for a five year term. Take it or leave it.

MarkFromCornwall

john_s wrote: »

Bit strong. It is what it is. It pays simple interest, and your capital and interest is locked away for a five year term. Take it or leave it.

It's not simple interest as I have always understood it. I've had accounts that pay simple interest and the interest has been paid to me annually so that I can invest it elsewhere. If I understand this new PO account correctly they effectively put the interest into an account that doesn't pay interest for the rest of the five years.