Inflation Linked Savings discussion area

kidmugsy

itm2 wrote: »

Is there any reason to go for a 5 year term instead of 3 years??

I tend to take the attitude that the 5-year certificate is the bird in the hand. Suppose the government in 2015 were to instruct ns&i to stop rolling over certificates, or even just to limit the size of rollovers, then the longer life would be advantageous.

alanq

itm2 wrote: »

My 3-year NS&I certificate is expiring in the next few weeks. I want to stay invested, but need to decide on a 3-year or 5-year term - both are RPI+0.15%
Is there any reason to go for a 5 year term instead of 3 years??

I nearly nearly used kidmugsy's reasoning myself when I had a certificate maturing. Then I realised that if you allow a 3-year certificate to roll over you are guaranteed RPI+0.15%. But if you opt for the 5-year you will get whatever rate is set on the date the current certificate matures. In the current climate any rate change is unlikely to be in an upwards direction. I therefore decided to stick with 3 years.

kidmugsy

alanq wrote: »

Then I realised that if you allow a 3-year certificate to roll over you are guaranteed RPI+0.15%. But if you opt for the 5-year you will get whatever rate is set on the date the current certificate matures. In the current climate any rate change is unlikely to be in an upwards direction. I therefore decided to stick with 3 years.

I have no quarrel with that; there's no telling which policy will work best. Last time I did ask whether I could split the money between 3- and 5-year certificates, only to be told "no".

itm2

alanq wrote: »

But if you opt for the 5-year you will get whatever rate is set on the date the current certificate matures. In the current climate any rate change is unlikely to be in an upwards direction. I therefore decided to stick with 3 years.

Sorry for being dumb here but I didn't follow what you meant...when you say that you will get whatever rate is set on the date the cert expires - are you talking about the +0.15% rate, or the RPI?

alanq

itm2 wrote: »

Sorry for being dumb here but I didn't follow what you meant...when you say that you will get whatever rate is set on the date the cert expires - are you talking about the +0.15% rate, or the RPI?

RPI growth is always in the future and therefore unknown. I was referring to the +0.15%. (Although theoretically I suppose, for example, they could offer 95% of RPI growth +0%).

itm2

alanq wrote: »

RPI growth is always in the future and therefore unknown. I was referring to the +0.15%. (Although theoretically I suppose they could offer 95% of RPI growth +0%).

That's what I thought. So if it's unlikely to go up, wouldn't it make more sense to lock into the 0.15% rate for 5 years, in case it goes down (or goes away completely?)

alanq

itm2 wrote: »

That's what I thought. So if it's unlikely to go up, wouldn't it make more sense to lock into the 0.15% rate for 5 years, in case it goes down (or goes away completely?)

When your certificate is nearing maturity you will be offered a rate - say RPI+0.15%. That rate is guaranteed if you let your existing certificate roll over for another 3-year term. If, however, you decide to apply for the 5-year version you won't know what rate you will be getting until the existing certificate matures. There is a risk that it will be less than +0.15%. By then it will be too late to change your mind. You will have to accept that rate or cash in.

If the 0.15% was guaranteed and I was confident that I would not need to access the funds for 5 years then I would have opted for the 5-year term. But it was not so I chose not to take that risk. (There is also the possibility, though I think a low probability, that the rate on offer in 3 year's time will be better than RPI+0.15%)

itm2

alanq wrote: »

When your certificate is nearing maturity you will be offered a rate - say RPI+0.15%. That rate is guaranteed if you let your existing certificate roll over for another 3-year term. If, however, you decide to apply for the 5-year version you won't know what rate you will be getting until the existing certificate matures. There is a risk that it will be less than +0.15%. By then it will be too late to change your mind. You will have to accept that rate or cash in.

If the 0.15% was guaranteed and I was confident that I would not need to access the funds for 5 years then I would have opted for the 5-year term. But it was not so I chose not to take that risk. (There is also the possibility, though I think a low probability, that the rate on offer in 3 year's time will be better than RPI+0.15%)

Aah I see - I've just seen the small print at the bottom. Thanks for pointing that out!

Middle_Sister

I think I will reinvest for a further 3 years on you guys' advice - do I have to send off a Certificate for this? If so, I'll have to dig deep to find it.

alanq

If you do nothing a Savings Certificate is reinvested into the same type of certificate for the same term. This is explained in the letter that comes with the maturity statement.