NS&I certificates

capehorn

I had decided yesterday to put £10k into one of these but when I woke to find the markets were falling as they did I paused to rethink.

Now I admit I know nothing about this sort of thing (!), but I did think that if the markets crash like they did in 2008, well RPI was negative for 8 months in 2008 so is that likely to happen again, making the certificate yield less than high street saving products?

FWIW my cash savings strategy is £10.6k ISA, £10k instant access savings products (3%) and £10k certificates. I was going to cash them in after a year or two. Are these certificates still considered to be a good idea after what happened today?

I know I am probably worrying too much but I would hate to invest in them on the day that clear signs went out that they may not provide a great rate and I just wasn't able to understand the implications of the market fall.

Thanks.

Sceptic001

capehorn wrote: »

Now I admit I know nothing about this sort of thing (!), but I did think that if the markets crash like they did in 2008, well RPI was negative for 8 months in 2008 so is that likely to happen again, making the certificate yield less than high street saving products?

The sudden fall in RPI inflation in 2008 was caused mainly by the dramatic decline in mortgage interest payments when the base rate fell from 5% to 0.5%. Clearly this cannot be repeated while base rates remain so low.

It was one of the rare occasions in recent history when RPI inflation was less than CPI inflation (CPI excludes mortgage interest payments).

capehorn

I see. And am I right in thinking that gas/electric prices are included in RPI? So the EON tariff increases next month will be factored in?

masonic

capehorn wrote: »

I see. And am I right in thinking that gas/electric prices are included in RPI? So the EON tariff increases next month will be factored in?

Yes, they are included. Overall, energy/fuel prices make up just under 5% of the RPI. If you're interested in the sort of things that are included in RPI, this pdf file gives a breakdown. If you scroll forward to the first table, it lists the different types of expenditure that are included along with their weightings. Right at the end of the document in Annex B, there is a much more thorough list of the individual items that are included in RPI.

ffacoffipawb

masonic wrote: »

Yes, they are included. Overall, energy/fuel prices make up just under 5% of the RPI. If you're interested in the sort of things that are included in RPI, this pdf file gives a breakdown. If you scroll forward to the first table, it lists the different types of expenditure that are included along with their weightings. Right at the end of the document in Annex B, there is a much more thorough list of the individual items that are included in RPI.

So a 20% rise will give a 1% rise in RPI (approximately).

Nice for my linkers maturing in November - could get nearly £17k back for my £15k investment - not a bad tax free return! I will keep them in the linkers of course as a reinvestment.

lisyloo

I personally think short term i.e. next 12 months these may not be such a great investment.
I think RPI will fall. Exactly how much we don't know.
I may be looking for alternatives quite shortly.
I'm possibly thinking of banking stocks but obviously that's not for the cautious.

ffacoffipawb

lisyloo wrote: »

I personally think short term i.e. next 12 months these may not be such a great investment.
I think RPI will fall. Exactly how much we don't know.
I may be looking for alternatives quite shortly.
I'm possibly thinking of banking stocks but obviously that's not for the cautious.

Don't underestimate the tax free income of these (and ISAs). Not only do you not have to pay 20% tax but you are also spared (if your income is in the right range) the additional 41% effective tax rate due to the loss of any child tax credits too.

And also don't forget the loss of child benefit in 2013 if investment income makes you a higher rate taxpayer.

Tax free income is gold dust, hence why I am building it up - see my signature below.

hallmark

Makes it a lot easier to fill out your tax return too!

masonic

lisyloo wrote: »

I personally think short term i.e. next 12 months these may not be such a great investment.
I think RPI will fall. Exactly how much we don't know.
I may be looking for alternatives quite shortly.
I'm possibly thinking of banking stocks but obviously that's not for the cautious.

I don't think RPI will fall. It will increase more slowly than over the past 12 months, but deflation is pretty unlikely in the short term.

lisyloo

Don't underestimate the tax free income of these (and ISAs).

Oh I certainly don't. All my money is tied up in PPR (home), pensions, ISAs or NSI. I pretty much pay no income tax or CGT.
However don't forget that I have a £10K CGT allowance per tax year and so does my husband.

Tax free income is gold dust

Totally agree and I'm following a similar strategy to you.