NS&I Index linked savings certificates

lisyloo

In theory I would agree, but haven't they told us that inflation will be 2% soon

No they've said otherwise recently.

Masomnia

StevieJ wrote: »

In theory I would agree, but haven't they told us that inflation will be 2% soon

I'm expecting a 'blip' personally

Masomnia

pqrdef wrote: »

Income's got nothing to do with it. These things were Granny Bonds originally, and were invented so that people who have to live on their savings (which disqualify them from means-tested benefits) didn't have to worry about their savings being eaten away by inflation.

The government could afford it because tax revenue automatically keeps pace with inflation.

The impact on government borrowing costs is minimal. Last year's NS&I target was £2bn, which is a drop in the ocean compared to total Treasury borrowing.

I think they're more about appeasing higher rate tax payers.

Even if borrowing from the market saves 'only' £40,000,000 that's worth it in my view at a time of austerity.

Masomnia

lisyloo wrote: »

Do you know what[STRIKE] interest rates or savings rates re[/STRIKE] inflation is going to be in the next five years?
No-one knows so a [STRIKE]fixed rate[/STRIKE] index linking is a gamble.
Furthermore that's a ISA and some people will be looking for a home for their money after using their ISA allowance, so this option will not be open to them.

It cuts both ways, and there are risks and downsides with any product. I wouldn't have ILSCs on their own, but as part of a portfolio.

gadgetmind

Masomnia wrote: »

I wouldn't have ILSCs on their own, but as part of a portfolio.

Exactly. A balanced portfolio of global equities and some ILSCs is as simple and effective as it gets.

ffacoffipawb

gadgetmind wrote: »

Exactly. A balanced portfolio of global equities and some ILSCs is as simple and effective as it gets.

Indeed.

I have 40% UK direct equities via self select ISA
25% fixed rate cash ISA 5% for 5 years)
13% ILSC (1 new issue last year and one renewal last year)
8% 5 year fixed rate bond 5% (Newcastle BS) mat in 2014
5% 3 year fixed rate bond Nationwide mat 2013
9% Instant Access (Lloyds Vantage)

pqrdef

Masomnia wrote: »

Even if borrowing from the market saves 'only' £40,000,000 that's worth it in my view at a time of austerity.

But they're still selling index-linked gilts, even long-dated ones. They're an expensive way to borrow, but they have to issue them because the pension fund and annuity industries depend on them.

oldvicar

Great shame there is unlikely to be new issues of ILSCs this year ... or ever?? I just hope they will continue to offer them for maturing certificates, although RPI +0.25% on current re-invesments isn't a great return.

Politically, to show commitment to keeping a lid on inflation, there ought to be one, even if using an excuse such as NS&I £0 net funding requirements means imposing a very low cap on new investment (say £5K rather than previous £15K)

Also given the Treasury Select Committee's remarks then something should be done for "hard pressed Granny".

If anyone out there in government circles is listening may I suggest a taxable (not tax free) RPI linked bond, for example paying 1.25 times RPI, or RPI + 1.0%. Maybe one that pays out interest annually but has potential to last 'forever' (50 years should be enough for most Grannies) but accessible after 5 years. This means that ordinary 'hard-pressed' Grannies, even those liable to basic rate tax should get a real return, and would not be seen as pandering to fat cats (or fat grannies). One last thing - it needs to be available to young Grannies - like me

alanq

If the aim was to benefit small savers rather than keep things simple to administer then the answer would be to place a cap on the total holding of ILSCs of all issues or a limit on how much can be reinvested. I seem to recall times when (say) one could buy £10,000 of an issue with new money but could only reinvest a maximum of an additional £10,000 from maturing certificates in that issue.