Cash in ns&i index linked bonds?

phred

With inflation forecast to drop significantly over the next couple of years I'm considering cashing in my above bond on its 1st anniversary in May.
After rushing to buy these bonds last May I now wonder if it was the right thing to do as fixed rate bonds look like they could be a better deal soon.
Has anyone any thoughts?

MoneySaverLog

Money is tax free and the index is still higher than what it was when I put my money in back in May. It's probably wise to have some cash safe from the risk of inflation going up though you are right it looks like it may come down and so might be worth cashing in and investing elsewhere.

Just my thoughts.

longleggedhair

Yes I was thinking along the same lines also. However I would want to see a sustained drop in inflation to a stable base beford I considered moving them.

calypso_rhapsody

What was your rationale for buying them in May? Was it to get the best rate or to get a hedge against inflation? There is a place for such a hedge in any portfolio and personally i hold on to my NS&I IL bonds even in periods of low inflation.

They are limited to £15k holdings in each issue (though a couple can invest £60k together by holding £15k in trust for each other) and so cashing them in means that you may not get a chance to buy more in higher inflation times .... but of course it does depend on the size of your portfolio whether this last point matters.

phred

calypso_rhapsody wrote: »

What was your rationale for buying them in May? Was it to get the best rate or to get a hedge against inflation? There is a place for such a hedge in any portfolio and personally i hold on to my NS&I IL bonds even in periods of low inflation.

They are limited to £15k holdings in each issue (though a couple can invest £60k together by holding £15k in trust for each other) and so cashing them in means that you may not get a chance to buy more in higher inflation times .... but of course it does depend on the size of your portfolio whether this last point matters.

At the time I was concerned about inflation destroying my savings.
All the so called experts seem to agree that inflation will drop to about 2 or 3 % soon so my concerns have decreased.
Even after taking the tax free benefits into account fixed rate bonds are looking more attractive.
I should add that each year I buy my ISA fixed term bond and I am very risk averse. I own no shares, retired with a decent occupational pension and savings of about £80K.
Like most people I am simply trying to maximise returns without risk taking.

dunstonh

After rushing to buy these bonds last May I now wonder if it was the right thing to do as fixed rate bonds look like they could be a better deal soon.

You buy NS&I index linked certificates (not bonds) to give you a hedge against inflation. Savings rates rarely keep up with inflation over the long term (you get periods above and below but average out to below). So, the certs can still be very good value. Plus, they are tax free.

In the economic cycle, you would expect inflation to begin to increase as recovery kicks in proper. So, whilst there is some decline now (part of which is due to things dropping off that occurred previously), there are still inflationary pressures that will come in future. The next stage after that tends to see interest rates rise. So, moving to a long term fixed rate deal could see you benefit in year 1 or 2 but then getting left behind in the later years of it as interest rates increase.

On top of all that, you need to have a crystal ball to know which option is going to be best. You wont have one so you hedge your bets and do not go 100% into any one option.

lisyloo

Firstly you don't have to cash them in on an anniversary, after the 1st anniversary you can cash them in any time you want although I believe interest is paid in full months so it would make sense to cash them in at the end of a full month (you might need to double-check whether this is anniversary month or calendar month).
I would have thought the comparison would be pretty easy.
You need to compare the return (RPI is published monthly) and compare with whatever you can get elsewhere bearing in mind income tax.
At the moment I think they are worth keeping so all you have to do is looking at the figures monthly.

It's not going to be the same decision for everyone.
For example a higher rate taxpayer with full ISAs will have to pay 40% income tax on interest so will be less inclined to move than lower rate tax payers or people with ISA allowance remaining, so this is a person decision based on personal circumstances.
Personally I'm keeping mine for now but will review monthly.

CLAPTON

phred wrote: »

At the time I was concerned about inflation destroying my savings.
All the so called experts seem to agree that inflation will drop to about 2 or 3 % soon so my concerns have decreased.
Even after taking the tax free benefits into account fixed rate bonds are looking more attractive.
I should add that each year I buy my ISA fixed term bond and I am very risk averse. I own no shares, retired with a decent occupational pension and savings of about £80K.
Like most people I am simply trying to maximise returns without risk taking.

taking the fixed term bonds you already have
how have they done compared to inflation over the last few years
were they a good buy or a poor buy?

phred

CLAPTON wrote: »

taking the fixed term bonds you already have
how have they done compared to inflation over the last few years
were they a good buy or a poor buy?

My fixed rate bonds are paying between 4-4.75%.
My cash ISAs range between 4.25-5%.

So after tax (I am a basic rate taxpayer) my fixed rate bonds have lost value in real terms.

It looks like my cash ISAs are going to be a lot better.

Maybe this answers my question and I should leave my money in the NSI index linked certs.

Blackdog

The fact that they are tax free is the main reason that I would recommend keeping them whilst interest rates are so low.

buffman

I would certainly keep them. They are tax free and GUARANTEED to give you a real positive return. Inflation will drop this for for mainly technical reasons. However if you cash in and NS & I do not issue any more new issues, you will probably regret your decision in 2013 and beyond.