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

IGK

As this new issue has a rate 0.5% lower than the one that was withdrawn, it means that existing holders who wish to roll-over maturing certificates will now only get 0.5% instead of 1% over RPI. This will help to offset the cost to the Treasury (to the detriment of those existing holders).

Stochasticity

oldvicar wrote: »

I entirely agree.

But people commonly take a central assumption that inflation will continue at the 'current' rate.

Because of the VAT rises in both 2010 and 2011, reported headline rates since early last year have been temporarily boosted. Although VAT changes have a real effect on prices the 'underlying' rate without the VAT change would have been reported as around 3.8% rather than 5.3%. Thinking about it this way may help people ignore some of the over-hype about the returns which can be expected.

philc27 wrote: »

What I meant was that the present 5.3% RPI rate includes the VAT rise that took place in January. When that rise falls out of the equation come next year, RPI will be significantly lower - although of course, as some of the other posters stated, not every item that makes up the RPI has 20% VAT applied.

Very true, but it's hard to predict with any great certainty where RPI figures are going in the short to medium term - just look at the difficulty the Bank of England Monetary Policy Committee, the supposed experts, has had historically in getting their forecasts even within 2-3% of how reality panned out a year or two later.

In any case, though, the USP of these NS&I products isn't an unbeatable rate, it's peace of mind and security in the knowledge your money will grow in real terms come what may.

nrsql

My comment about the VAT rise causing a hike was just meant to point out that you have to be cautious about predicting future RPI values from the current annual % increase.

I think we aer now seeing the inflation due to the reduction in value of sterling hiting import prices - which has been delayed and I think will continue. Also remember how much RPI was reduced when the boe rate was brought down (who said it doesn't become negative?).

I think the VAT anomoly will be outweighed by the base rate increase and further import cost increases before the end of the year. I don't believe these predictions about a flattening in the near future.

oldvicar

Stochasticity wrote: »

Very true, but it's hard to predict with any great certainty where RPI figures are going in the short to medium term - just look at the difficulty the Bank of England Monetary Policy Committee, the supposed experts, has had historically in getting their forecasts even within 2-3% of how reality panned out a year or two later.

In any case, though, the USP of these NS&I products isn't an unbeatable rate, it's peace of mind and security in the knowledge your money will grow in real terms come what may.

I usually assume that inflation will be higher than official (BoE) forecasts. So far therefore my predictions have been better than theirs! Simples! Even if I'm wrong, the USP of peace of mind is well worth it to me.

oldvicar

Will anybody admit to rushing to buy some today whilst stocks last?

I hope they'll still be around when my government guaranteed 3-yr 6.95% pa fixed Northern Rock bond matures (August I think)

Sceptic001

MarkFromMullion wrote: »

I don't think the retail prices index has ever fallen, although it could in theory. It just goes up more slowly sometimes.

For information, the ONS table listing annual inflation rates 1948-2011 as measured by RPI is here.

The negative rates in 2009 were caused by the dramatic fall in mortgage interest rates (RPI includes housing costs, unlike CPI) - a scenario that will not be repeated since the base rate cannot go any lower. If mortgage rates rise this will be reflected in an increase in RPI.

KTF

Are you able to track these online or do they just send out an annual statement in the post?

Tempted to put the max of 15k allowed that is currently sitting in my (soon to have the interest rate reduced) Lloyds Vantage account in this as the theoretical rate on offer is better than current instant access accounts and tax free as well.

nrsql

KTF wrote: »

Are you able to track these online or do they just send out an annual statement in the post?

Tempted to put the max of 15k allowed that is currently sitting in my (soon to have the interest rate reduced) Lloyds Vantage account in this as the theoretical rate on offer is better than current instant access accounts and tax free as well.

Don't think these are included in the on-line valuations - but you can see the RPI index and get a good idea if you remember the date ou bought.
You don't get an annual statement but you can ring up, give your holders number and get one sent to you, same as for premium bonds.

>> Tempted to put the max of 15k allowed
What's the downside. If you leave it a year then you'll probably already have something decent, then you can think of it as a 1 month loss of interest on withdrawal account - and gains get locked in at the anniversary.

KTF

nrsql wrote: »

What's the downside. If you leave it a year then you'll probably already have something decent, then you can think of it as a 1 month loss of interest on withdrawal account - and gains get locked in at the anniversary.

Thanks for the additional info. Very little to lose by going for them like you say and happy to leave it alone for at least a year...

Sceptic001

KTF wrote: »

Are you able to track these online or do they just send out an annual statement in the post?

They don't send out an annual statement but you can check their current value on their website: http://www.nsandi.com/savings-index-linked-savings-certificates#interest-calculator
(click on interest calculator)