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

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  • whu
    whu Posts: 23,461 Forumite
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    Can I please just clarify something

    If I bought a certificate now and the RPI is 5.2% and this time next year it is 5% would I get 5.25% interest ie the rate of RPI at the time plus the .25%?
    Keep the Faith:cool:
  • typistretired
    typistretired Posts: 2,099 Forumite
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    The MSE editor explained here

    Clearing up the confusion
    Editor's note: A suggestion in a number of reader comments on these bonds is incorrect and has confused the Retail Prices Index with the annual percentage change in the RPI, i.e., inflation as measured by the RPI.
    These are comments stating that the RPI inflation percentage figure must be higher at the end of the year than the start for savers to get a return.
    The bonds are linked to the Retail Prices Index - this is an index that, as long as prices in the UK are rising, rises each month from an original base level of 100.
    NS&I explains: 'If the RPI end level is higher than the RPI start level – then we add it to your investment.'
    Some readers have confused matters and thought that this means in order to get a return, RPI inflation has to be higher at the end of the year than at the start, i.e., it starts the year at say 5.2% and ends it at 5.3%. They have also read this to mean that if the RPI inflation percentage figure is lower then there is no return, i.e., it starts the year at 5.2% and ends the year at 5.1%.
    This is not the case. As we have explained in each of our articles on the NS&I savings certificate, the bond pays the RPI inflation figure at the end of each year plus an average of 0.5% per year over the five years.
    Savers will see their rate fall if RPI inflation falls, and it may be the case that the rate becomes less attractive than other savings accounts.
    The only instant when savers would not get a return and the index would be the same or lower is if the RPI does not change (i.e., RPI inflation is 0%) or falls (i.e., negative RPI inflation or 'deflation'), at that point savers would only get the fixed interest of 0.5%. We hope this clears matters up.
    "Look after your pennies and your pounds will look after themselves"
  • Rollinghome
    Rollinghome Posts: 2,729 Forumite
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    edited 13 May 2011 at 2:10PM
    whu wrote: »
    Can I please just clarify something

    If I bought a certificate now and the RPI is 5.2% and this time next year it is 5% would I get 5.25% interest ie the rate of RPI at the time plus the .25%?
    Yes. If the Retail Price Index goes up by 5% over the next year you'll get 5% +0.25%. Ignore whatever the % rise in the RPI figure was over the past year. It's irrelevant.

    ilscdiagram.jpg
    Illustration from the website.

    RPI start is 188.9 and goes up 2.3822128% to 193.4 in year 1 so index-linking on £10k is £238.22 and the bonus interest bit is added.

    Worth noting that although savings rates are very low at the moment, until recently the best rates before tax would normally easily have beaten RPI +0.5%. (As you can see from the spreadsheet compiled by Cepheus https://forums.moneysavingexpert.com/discussion/3228172 .) But the IL certs are tax free so your own tax position is a big part of the calculation. If inflation remains high the BoE may be forced to raise rates. They could be a good choice over the next year or so but after that it's anyone's guess. You might need to consult the tealeaves on future savings rates and inflation.
  • whu
    whu Posts: 23,461 Forumite
    10,000 Posts Combo Breaker
    Thanks for that.

    I just want to be clear - you say if the RPI goes up by 5% I would get 5% plus o.25% after the first year- what if the RPI goes down after the first year say from 5.3% to 4.3% - what would I get?

    Would it be 4.3% plus .25%?
    Keep the Faith:cool:
  • Consumerist
    Consumerist Posts: 6,311 Forumite
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    edited 13 May 2011 at 2:32PM
    billieboy wrote: »
    Can you add to it after initial investment?

    You don't actually add to the initial purchase, you just purchase another certificate(s) up to a total of £15k in this particular issue. If they market other issues then you can purchase up to another £15k in each of those too.
    >:)Warning: In the kingdom of the blind, the one-eyed man is king.
  • Consumerist
    Consumerist Posts: 6,311 Forumite
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    Illustration from the website.

    Be aware, however, that this new issue pays an overall 0.5% pa (not 0.25%) above indexation. It is not the same each year, being less than 0.5% in the early years and more in the later years.
    >:)Warning: In the kingdom of the blind, the one-eyed man is king.
  • Rollinghome
    Rollinghome Posts: 2,729 Forumite
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    edited 13 May 2011 at 2:35PM
    whu wrote: »
    Thanks for that.

    I just want to be clear - you say if the RPI goes up by 5% I would get 5% plus o.25% after the first year- what if the RPI goes down after the first year say from 5.3% to 4.3% - what would I get?

    Would it be 4.3% plus .25%?
    If the RP Index goes up another 4.3% in year 2 you'll get another 4.3% plus 0.35% of 1st anniversary value.

    The bonus bit rises each year to give you an average of +0.5% over the full 5 years - to encourage you to stay in. If the RP Index goes down in the second year, ie deflation instead of inflation, you'd just get the bonus without any index linking. They don't take money back.
    Be aware, however, that this new issue pays an overall 0.5% pa (not 0.25%) above indexation. It is not the same each year, being less than 0.5% in the early years and more in the later years.
    Indeed. As you can see they explain that in the illustration.
  • Consumerist
    Consumerist Posts: 6,311 Forumite
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    edited 13 May 2011 at 4:05PM
    whu wrote: »
    Thanks for that.
    I just want to be clear - you say if the RPI goes up by 5% I would get 5% plus o.25% after the first year- what if the RPI goes down after the first year say from 5.3% to 4.3% - what would I get?
    Would it be 4.3% plus .25%?

    You've got the right idea but the 0.5% (overall) fixed interest is not the same each year. So, in the case you cite, you would get the 4.3% indexation plus whatever the fixed interest is for that particular year.
    >:)Warning: In the kingdom of the blind, the one-eyed man is king.
  • whu
    whu Posts: 23,461 Forumite
    10,000 Posts Combo Breaker
    edited 13 May 2011 at 2:57PM
    You've got the right idea but the 0.5% (overall) fixed interest is not the same each year. So, in the case you site, you would get the 4.3% indexation plus whatever the fixed interest is for that particular year.

    Thanks that's helpful:)

    So if RPI was 5% when I took it out and 5.2% at the first anniversary what would I get ?

    Also is it penalty free if you withdraw your money after the first year as in previous years and can you partially withdraw your money?

    Trying to get through on the phone to them but constantly engaged!!!
    Keep the Faith:cool:
  • Rollinghome
    Rollinghome Posts: 2,729 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    whu wrote: »
    Thanks that's helpful:)

    So if RPI was 5% when I took it out and 5.2% at the first anniversary what would I get ?

    Also is it penalty free if you withdraw your money after the first year as in previous years and can you partially withdraw your money?

    Trying to get through on the phone to them but constantly engaged!!!
    You need to forget about what the RPI is now. That figure is only the percentage rise in the index over the past 12 months.

    The only thing that counts is how much prices rise in the next 12 months - which won't be known until then. If the RPI was 200 on the start date and 210 on the anniversary date you'd get 5% plus 0.25% bonus.

    The only penalty is that you only get a 0.25% bonus instead of the full 0.5% and you can make partial withdrawals.
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