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

pqrdef

The return on these certs isn't based on the headline "rate of inflation", although some journalists tried to describe them that way. It's based on the actual rise in the index. It's the same thing when interest is calculated on the anniversary, but not in between times.

In March 2011 your certs were credited with an increase in value based on inflation in the 12 months up to Jan 2011, including whatever effect the VAT increase may have had in Jan 2011.

If you now cash in a month early, you get a further increase in value based on inflation in the 11 months up to Dec 2011. You don't get Jan 2011 reckoned twice.

In other words, if you reckon the VAT increase has been adding say 1% to the headline rate since Jan 2011 inclusive, and this will drop out in Jan 2012, then your certs have actually been increasing in notional value at 1% less than the headline rate since your anniversary date, and it's too late to do much about it now.

oldvicar

alanq wrote: »

I cashed in some of my ILSC when inflation was low a few years ago.

...

I was buying all I could when the annual rate of change in the RPI (the rate used in headlines) was low and even negative a couple of years ago, and I'm glad I did.

I'm not wishing to boast about how clever I am, just to illustrate that focussing on the headline rate of short-term (annual) past inflation can be counter productive.

oldvicar

oldvicar wrote: »

....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.

...

I want to correct myself please:

Changes in base rates which feed through to mortgage rates show up quickly in the RPI. This happened when BoE rates tumbled to 0.5% quickly, and RPI annual %age changes went negative. If/when rates go up again there will be a quick tick up in the anual rate, temporarily.

Its changes to the long term / underlying rate which are supposed to take about 2 years to feed through.

opinions4u

While I might also be stating the obvious, don't forget the tax benefits of keeping these. TAX FREE.

le_loup

alanq wrote: »

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

Whoops!
On a Friday night, I don't know what year we're in!