Cash in ns&i index linked bonds?

cepheus

Unless you need the money, wait at least until your return from the certificate is less than your net return from a no penalty withdrawal deposit account. At present the best deposit accounts are only paying around 3%, even less if you pay tax. RPI would have to fall to around 2.5% for that!

Masomnia

cepheus wrote: »

Unless you need the money, wait at least until your return from the certificate is less than your net return from a no penalty withdrawal deposit account. At present the best deposit accounts are only paying around 3%, even less if you pay tax. RPI would have to fall to around 2.5% for that!

This time next year, and it's the future you need to think about, RPI change may very well be 2.5%.

Comparing savings rates now with inflation now or over the last year is pointless.

oldvicar

They are also very useful for those over 65 with income approaching the point at which age allowance is reduced, since the returns don't count as income.

notbritishgas

I am just coming up to the second (March) anniversary of my 3 year IL certificate.
Am I correct in thinking that the gains made over the last 2 years at relatively high inflation will be locked in so that if inflation drops to 2.5% in a years time it will only affect it for one year?

Masomnia

notbritishgas wrote: »

I am just coming up to the second (March) anniversary of my 3 year IL certificate.
Am I correct in thinking that the gains made over the last 2 years at relatively high inflation will be locked in so that if inflation drops to 2.5% in a years time it will only affect it for one year?

Correct, yes. Even if we get negative change in RPI you still get the interest bit, so the value of your certificate won't go down.

agsnu

notbritishgas wrote: »

I am just coming up to the second (March) anniversary of my 3 year IL certificate.
Am I correct in thinking that the gains made over the last 2 years at relatively high inflation will be locked in so that if inflation drops to 2.5% in a years time it will only affect it for one year?

Yes. It sounds like you might not have a clear understanding of how they work, so here's my attempt at explaining this (with some simplifications of the numbers involved):

Say you invested £1000 for 3 years, and got 0.5% on top, and the index was at 100 when you invested. The media said "RPI is 4%" - this really means that the index went up by 4% in the year prior to your investment.

At investment, you have £1000, and the index is 100, and the 4% is irrelevant (all it means is that exactly a year before you invested the index was 96.2).

After 1 year, let's say annual inflation as measured by RPI was quoted as being "3%". This means the index has now moved to 103, and the value of your certificates is £1030 due to inflation, plus the 0.5% giving you a total of £1035.

At the second anniversary, let's say inflation is running at 2.5%. The index would then be 105.5, and your certificates would be approximately £1060 plus the 0.5% so £1066.

A few months later, inflation started to slow, but was still in positive territory. The index ended up at 107 at 2.5 years after you invested, with your certificates having a current value of £1080. You could cash them in at this point, as it's more than a year after you invested, but you'd miss out on any of the "fixed" 0.5% for your third year.

Then inflation took a big turn for he negative, and at the third anniversary the annual rate was running at -1%. The value of the index would be 104.4 (having fallen from 107 in 6 months), and your certificates would still be worth £1066 as that was their second anniversary value (if they were completely tracking RPI, at this point they'd have fallen to £1055). You'd still get the 0.5% for the third year, giving you a final value of £1071.

Notes:
- Just for some context, as of December 2011, the RPI annual percentage change (CZBH) was 4.8%, with an actual index value (CHAW) of 239.4. (where CZBH and CHAW are the data set names as published by the Office of National Statistics)
- The "fixed" portion of the NS&I ILSCs actually varies slightly over the course of the term due to the fact it's paid annually and compounded.

oldvicar

notbritishgas wrote: »

I am just coming up to the second (March) anniversary of my 3 year IL certificate.
Am I correct in thinking that the gains made over the last 2 years at relatively high inflation will be locked in so that if inflation drops to 2.5% in a years time it will only affect it for one year?

Yes, your earnings for the first 2 years will be locked in. If inflation in the final year slows to 2.5%, you will get 2.5% plus 1.21% -- the certificates you bought pay +1.00% overall including 1.21% in the 3rd year --.

So in year 3 your would get 2.5% + 1.21 % = 3.71 % .... all Tax Free, and the opportunity to roll-over into a new 3 year certificate afterwards. :j

A basic rate taxpayer would need over 4.6% to beat this.

I bet you want to keep them !!

notbritishgas

oldvicar wrote: »

Yes, your earnings for the first 2 years will be locked in. If inflation in the final year slows to 2.5%, you will get 2.5% plus 1.21% -- the certificates you bought pay +1.00% overall including 1.21% in the 3rd year --.

So in year 3 your would get 2.5% + 1.21 % = 3.71 % .... all Tax Free, and the opportunity to roll-over into a new 3 year certificate afterwards. :j

A basic rate taxpayer would need over 4.6% to beat this.

I bet you want to keep them !!

Too true!!!!

phred

lisyloo wrote: »

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).
.

Thanks for your reply.
I had a look a NS&I website and it looks like only completed periods of three months count after the anniversary date.

See following extract from their terms and conditions.

On an anniversary date

We’ll pay you the anniversary value for that year, which will include the fixed interest at the rate that applies for that year.
Between anniversary dates

We’ll pay you the most recent anniversary value plus any fixed interest for each complete period of three months since then.

oldvicar

If cashing in mid term then its only with matured/re-invested/rolled-over certificates that you get both index linking and fixed interest for each complete month right up to the point you cash them in. For example if you originally bought 3 year certificates, then after the 3 years you get interest for every complete month until you redeem them