Cash in my NS Certs before the RPI drops in Feb 2012?

SusanBL

Hi, not sure if anyone has spotted this but if you have Savings Certificates interest is credited annually and the RPI is due to lower significantly from Jan 2012, after the 2.5% VAT change drops off out of the calculation.

So if you cash in by February are you better off by 2% but lose the annual c.0.5% bonus and the remaining term of the Savings

My 3 Year Certs were purchased in March 2010 and I believe I would be better off cashing up by February(interest is credited based on the RPI from 2 months previous).

Has anyone come across this and agree with my view?:money:

dunstonh

Who says RPI is going to drop?

Whilst VAT dropping off will have a drag in one direction there are still pulls in the other direction.

How do you work out you will be better off by 2%?

le_loup

Cash in after holding for 11 months and you get nothing; no interest, no RPI.
Just a small point but I thought I ought to mention it!

Sceptic001

Your theory would work if the Retail Prices Index consisted entirely of items charging VAT at the standard rate. In fact the ONS calculated that the rise in January 2011 impacted CPI by 0.76%. The effect on RPI would have been less because it includes more non-VAT items (principally Housing costs).

https://docs.google.com/viewer?a=v&q=cache:WwW1zRSBDzwJ:www.ons.gov.uk/ons/guide-method/user-guidance/prices/cpi-and-rpi/impact-of-the-vat-increase-on-the-cpi.pdf+VAT+CPI+20%25+17.5%25+ONS&hl=en&gl=uk&pid=bl&srcid=ADGEESh6DtuS1UsxsP58fna3L8pBJrjtRD6caL7hTgAnXIQAV51P62w2t287l4fpy0CbSR3h_EK3g0lvxsAvx6o34_BmCpX-zN3zGR3hpzPn7yVYTkiNC4Yc4EyEH2NATVaGGhV2doK0&sig=AHIEtbT82MREW6MW1FUtOX8DXh2nx5kP_w&pli=1

ses6jwg

You'd be foolish to cash in possibly the best financial product to be released in the last 2-3 years.

opinions4u

Sorry Susan. Your view is bonkers.

Until you've got a mix of rising interest rates and falling inflation risks, or have a desperate need for the cash, you should leave your money exactly where it is.

oldvicar

If you think that the RPI annual rate to be announced for Feb 2012 will be low, then this means that inflation in 2011 will HAVE BEEN low, so selling then, or just before then means you will have achieved this low return. In this scenario the time to sell would have been way back in February 2011 (or April for the February inflation rate since ILSCs operate 2 months behind)

If VAT remains unchanged going forward, this will have no effect on your returns ... the fact it went up early in 2011 may give the impression that inflation is currently (very approx 1%) higher than its 'underlying' rate. But the only people who get the benefit through holding ILSCs are those who bought last year or before (like the OP), not those buying between May and September this year when the latest issue was available.

When deciding wheher to keep or sell your opinion on what the rate of inflation to be announced in a year's time (or more) will be is what counts. Not the headline figures being bandied about today. Or, more properly, consider that it really doesn't matter what the inflation rate is if you bought them simply to be sure of preserving the value of savings. The will do that, plus a litle bit on top, whatever happens to inflation - that's their USP.

Personally, I shall be keeping all of mine. I shall buy more if I can. For the foreseeable future they will be the very last things I would sell. This is based on my view that inflation could be higher than most expect, but even if it is low and I could have done better in a fixed rate deposit I shall still be content. I shall have (a tiny bit) more money in 'real' (RPI) terms, and if I do get less than a different deposit would have paid, I shall be content that this small difference was a fair price for insuring against the risk of higher inflation and ensuring probably the most secure savings I could possibly get. [end of sales pitch ]

Ark_Welder

It's the RPI vs Rate Of Inflation thing again. RPI will not be lower in January (not without some sudden unexpected defaltionary event), but the rate at which it is increasing will be lower (OK, should be lower ).

lvader

dunstonh wrote: »

Who says RPI is going to drop?

Whilst VAT dropping off will have a drag in one direction there are still pulls in the other direction.

How do you work out you will be better off by 2%?

Lets look at what has been happening;

The pound has if anything strengthened
Commodity prices have dropped
Pay settlements have remained low
VAT increase dropping off
Global growth slowing

Where exactly is the inflation going to come from?

oldvicar

lvader wrote: »

Lets look at what has been happening;

The pound has if anything strengthened
Commodity prices have dropped
Pay settlements have remained low
VAT increase dropping off
Global growth slowing

Where exactly is the inflation going to come from?

Pay setlements are forecast to average 3% next year (I read on here), which seems high in the circumstances

China etc - they have inflation, albeit less than it was, and it's reflecting in the price of imports

Base rates - still at record lows. Conventional wisdom says increase rates to lower inflation, and vice versa. Since it takes about 2 years for changes in base rates to feed through to the inflation picture, we're just starting to see what the 0.5% rate will do.

QE - there are many who say the current round of 'printing money' won't be inflationary because it's different this time. We shall see. And there's going to be plenty more QE and similar measures yet.

HMG. This is the big one for me. I believe HM government wants a good dose of inflation to reduce the real value of the national debt, and will tacitly pursue policies to achieve this. Our government is not the only one, it will be popular worldwide.

People's expectations - the best forecasts of inflation seem to be what people overall expect it to be. Hence the importance placed on expectations in BoE forecasts, and Guvnor's speeches etc. Think these are on the increase.

And worst of all, if the inflation genie is released he will be terribly difficult to contain again.

PS. On another thread dunstonh has just hinted at a possible 10%+ inflation rate. His opinions are well regarded by some on these boards.

alanq

I cashed in some of my ILSC when inflation was low a few years ago. I wrongly assumed that I would be able to reinvest the funds in ILSC when inflation began to rise. In the past year inflation has been high and there hasn't been the opportunity to reinvest the funds because of NS&I's holding limits. If the recent practice of allowing unlimited reinvestment of matured ILSCs continues then one one can protect large sums from inflation for many years to come. A missed opportunity to invest in ILSC or the withdrawal of funds from ILSC reduces the the total that can be invested for many years to come and who knows how bad inflation may get?

le_loup wrote: »

Cash in after holding for 11 months and you get nothing; no interest, no RPI.
Just a small point but I thought I ought to mention it!

The OP says certificates were bought in March 2010. They have already been held for over 12 months.