MSE News: NS&I revives inflation-beating savings certificates

oldvicar

Rollinghome wrote: »

Are you sure? Bear with me while I think about it.

If you take one out on say the 1st of the month, in 12 months time you'll be entitled to the RPI increase over the previous 12 months (for simplicity ignoring that it's the RPI of two calender earlier that counts). To get the RPI for 13 months you'd need to delay cashing in for a further month.

If on the other hand you wait until say the 31th of the month, after 12 months you'd just need to stay in just one more day into the next month to get the RPI increase over a period of 13 months - I think.

It's possible the RPI for the extra month could be no higher the preceding month but by waiting until after the figures are released you'll then know how much you'd benefit by hanging on still longer. The RPI figures are released around the 15th of each month.

There could be an advantage at the beginning too. By delaying until after the RPI is announced in the middle of the month you'll whether the RPI, the actual index, is up or down. It doesn't always rise month on month. If it had gone down since your start date (of the month before) you'd need to recover that decline before getting a return.

That all sounds plausible to me but someone else might have spotted the flaw. If so, I'm just back from an extended afternoon barbie and that's my excuse.

You are (somewhat) right !!

IF you think you are likely to cash in before the full 5 year term (and therefore lose out on some of the full 0.5% above RPI overall interest to maturity) it may be possible to finesse the timing if you buy these towards the end of the month, and therefore know the RPI figure announced by ONS which will be applicable to the following month, since the figures are announced mid-month.

For example on Tuesday (17/5/2011) we'll know the index figure for April 2011. If for some strange reason the index has plummeted then holders of certificates bought over 12 months ago have until the day of the month they originally bought the certificate to decide whether it is advantageous to rush for the exit before their invesment COMPLETES another month. And if there's been a massive rise which you think won't be repeated the following year you might rush to buy before the month end (if they are not already withdrawn from sale).

BUT those are the tactics of the day-trader and speculator. If you are one of those then you can get much better leverage and gearing by gambling your stake money elsewhere. Given the max of £15K (per issue) getting the timing 'just right' with ILCs is unlikely to make more than a few £s difference.

Those who played this game a couple of years ago (RPI dipped slightly when the BoE made emergency cuts to base rates) must be kicking themselves now. There was discussion of cashing in ILCs in these forums. Those who sold will have missed out on the pretty good returns of the past year with no opportunity to buy back in whilst these were not on general sale.

Mr_K

Do you get an 'annual statement' on these or do you have to rely on their online calculator for a current value ?

oldvicar

Mr_K wrote: »

Do you get an 'annual statement' on these or do you have to rely on their online calculator for a current value ?

No. You onl get a written valuation just before maturity. Otherwise use the online calculator or phone up for the current value.

Mr_K

oldvicar wrote: »

No. You onl get a written valuation just before maturity. Otherwise use the online calculator or phone up for the current value.

Thanks, thats a shame. I know its a minor thing but 5 years is a long time. You'd need to make sure you or your dependents (if the worst happens) keep track of these.

Personally think i'll take the plunge again, doesn't seem as though you can lose. The money is always accessible unlike a traditional savings bond. I put £15K in last June before they were pulled and it looks to have done very well (when I say well i mean they've just kept up with inflation but that's more than any of my savings/cash isa's have done). You've always got the choice of closing after a year, if inflation falls and interest rates rise, so maybe it's best not to look at them as 5 years and keep then under constant review. Certainly not comparable to an inflexible 5 year savings bond which some seem to be trying to do.

adindas

So it is a disadvantage then, as this £15,000 money might sit in the account which pay very little or does not pay interest at all.

Any idea how to overcome this. Vantage account could only hold up to £7,000 with interest.

ADINDAS

Old_Slaphead wrote: »

In my experience NSI transfers sometimes take a couple of days to go through

oldvicar

Other advantages of these certificates "if the worst happens" are:

1. Being the government's money, they can be used to pay Inheritance Tax even before any grant of probate. This can be really useful, because IHT dues have to be paid before a grant of probate can be issued (avoiding the need to borrow to pay the tax due)

2. Holdings can be transferred to beneficiaries, even if they have already bought the maximum £15K per issue for themselves.

oldvicar

adindas wrote: »

So it is a disadvantage then, as this £15,000 money might sit in the account which pay very little or does not pay interest at all.

Any idea how to overcome this. Vantage account could only hold up to £7,000 with interest.

ADINDAS

No disadvantage if it takes a day or two for them to take your money - your certificates will be issued at the date your application is received.

lisyloo

If on the other hand you wait until say the 31th of the month, after 12 months you'd just need to stay in just one more day into the next month to get the RPI increase over a period of 13 months - I think.

No, you only get the interest if you stay in for complete months, not odd days.
This is all defined in their terms and conditions.
They even define what happens if the next month doesn't have a 29th, 30th or 31st.

If you cash in you ideally want to do it on a monthly addniversary.

Consumerist

lisyloo wrote: »

If you cash in you ideally want to do it on a monthly addniversary.

Strictly speaking, it should be on the day after the monthly "anniversary".

Edit
Should that be "moniversary" or something similar ?

lisyloo

Strictly speaking, it should be on the day after the monthly "anniversary".

Thanks.
In practice I don't think you can time it perfectly as I think it has to go via snail mail, and then someone has to pick it up and process it.