Repay mortgage or buy NS Bonds?

ericonabike

A combination of redundnacy and early retirement has left me in a position where I can repay my £80k offset mortgage. But I am thinking of instead of just repaying £50k and using £30k to buy National Savings Bonds [the max allowable for self and wife].

My mortgage is 2.39 over base rate, so currrently 2.89%. Nat Savings pay 0.5 over RPI, so currently giving a tax-free return of around 5%. And so over a year, if things remain the same, I'd come out ahead by around £600. After a year I can withdraw the money without penalty. And so as long as RPI stays ahead of Base Rate + 2.39%, I'd be in profit.

I can't see a downside, other than having to keep a close eyte on the two indicators, but wondered if I'd missed something obvious?

holly_hobby

I won't go into you should reduce debts before investing (especially in retirement) - as you clearly have thought this out - in only using part of your sum to reduce your mge, selecting NS, and understanding the tax implications and when to move your money out .. etc.

The only point I would raise, is I wouldn't put your whole 30k into a 12 mth notice vehicle - to be prudent you realy need to keep an element of capital in instant access for emergencies (ISA ?).

I presume that your retirement income is ok, and thats why purchase of an annuity isn't a consideration (albeit rates aren't currently great !)

Hope this helps

Holly

dunstonh

NS&I bonds are not great. Although you later clarify that its not their bonds but their index linked certs you are talking about. So, just a pointer to make sure it is the certs and not the bonds you are talking about.

Nat Savings pay 0.5 over RPI, so currently giving a tax-free return of around 5%.

No they dont. They pay future RPI over the term plus 0.5%. With the impact of VAT dropping off in 4 months, inflation is likely to fall back (ignoring other pressures which could affect it either way). So, chances are it will be lower than 5% going forward. Although its impossible to predict.

I presume that your retirement income is ok, and thats why purchase of an annuity isn't a consideration (albeit rates aren't currently great !)

An IVPPP can still get over 8% equivalent for someone in their 60s. Not quite the double digits of a few years ago but still pretty attractive for some people. PLA rates are bit naff though and look very poor value against 5% net guaranteed for life products which can offer a repayment of the investment value (whatever it is) back on death.

holly_hobby

OP - as your are retired - you need to consider your attitude to risk and the risk profile of any investment,savings vehicle you utilise.

Nat Savings, as with all lower risk investments, won't offer returns comparible with the more risky and speculative invesment mediums you may use - but have less risk of loss of capital (which is in essence important to all - but even more so when you are retired). This is especially important when you appear to be investing a sizeable chunk, from a lump sum of capital you have realised upon your redundancy/early retirement. Unless you have the capabilities to withstand any capital looses, and the attitude to whether them - stick to low risk investment mediums (as there is no such thing as a no risk investment although NS are treasury backed)

You may want to have a chat with a whole of market broker about obtaining guidance and advice on the best vehicles to your risk profile and requirements. Although advisers don't receive commission for Nat Savings they should still recommend them as part of a balanced portfolio, and if they are the most appropriate medium to your requirements.

At least, then you will go into any selected arrangement, having explored all suitable market products.

Hope this helps

Holly

ericonabike

Apologies - it was the certificates I was thinking of, rather than the Bonds. As far as risk etc goes - I have £10,000 in a Share ISA, which I manage myself and enjoy so doing. I will have around £10k in accessible savings as well. I've not seen any posts that convince me the NS route is foolish, and so I think I'll give it a shot.