Martin's wrong!

StevieJ

I have have just used the NS&I calculator based on 3 years Jan 1st 2004 until 31st Dec 2006

Original amount £15000
Full Term amount £17194

I work this out to be around 4.55% compound Tax free, = 7.6% for HR tax payer and 5.8 basic rate.

This is historical over the last three years, not a bad rate and I think inflation was well below 4.4% during this period

http://www.nsandi.com/products/ilsc/cashvalues.jsp

Grateful if somebody could verify my figures using the link above.

IGK

tommycatz wrote:

Therefore, if you buy now, RPI has to remain at 4.4% or increase.
If is deceases then the rate is very poor.
I emailed NS and they confirmed this is the case!

I'm not quite sure what you mean by the rate being 'poor'.
Certainly if the RPI increases at a slower rate then 4.4% once you purchase a certificate, then the indexing will be at lower rate than 4.4%. That's not to say it's 'poor'.
If RPI over the course of the certificate goes up by 3%, then you get 3% plus 1.15% (or whatever), if it goes up 5%, you get 5% +1.15%.

If there is DEFLATION, i.e. the Retail Price Index goes down (not inflation falling from 4.4% to 3% but going negative to say -1%), then you still get the 1.15% on top of your capital, which in that case looks to be a good deal anyway.

It's important to appreciate the distinction between the rate of inflation decreasing (i.e. the RPI goes up at a slower rate), and deflation, where the actual RPI goes down.
The RPI inflation rate is the rate of change of the Retail Prices Index.

StevieJ

IGK wrote:

I'm not quite sure what you mean by the rate being 'poor'.
Certainly if the RPI increases at a slower rate then 4.4% once you purchase a certificate, then the indexing will be at lower rate than 4.4%. That's not to say it's 'poor'.
If RPI over the course of the certificate goes up by 3%, then you get 3% plus 1.15% (or whatever), if it goes up 5%, you get 5% +1.15%.

If there is DEFLATION, i.e. the Retail Price Index goes down (not inflation falling from 4.4% to 3% but going negative to say -1%), then you still get the 1.15% on top of your capital, which in that case looks to be a good deal anyway.

It's important to appreciate the distinction between the rate of inflation decreasing (i.e. the RPI goes up at a slower rate), and deflation, where the actual RPI goes down.
The RPI inflation rate is the rate of change of the Retail Prices Index.

You must be a teacher, if not you have missed your vocation. I did not understand the point TC was trying to make, I realise now having read your explanation.

tommycatz

looking back, I avoided the Index linked certificates and opted for fix rate.
After 12 months, I cashed in and invested in US $.