Santander Inflation Linked Bond

missile

Hi,

I have been trying to guestimate the return one could expect from this product >
http://www.santander.co.uk/csgs/Satellite?appID=abbey.internet.Abbeycom&c=Page&canal=CABBEYCOM&cid=1237899884484&empr=Abbeycom&leng=en_GB&pagename=Abbeycom%2FPage%2FWC_ACOM_ViewSelector

RPI is currently 241.8 and was 198.5 6 years before.

IF inflation is at a similar rate over the next six years>
£10,000 saving @ 105% of the increase i.e. 21.8% would generate a return of 11,290. I estimate this to be equivalent to circa 4.25% AER.

Are my figures corrent?

Linton

Not quite. Unless I have made a mistake:

The RPI factor is (241.8/198.5) over 6 years

So the Santander factor is (241.8/198.5)*1.05 over 6 years

So the annual factor is ((241.8/198.5)*1.05)^(1/6) = 1.04187
or a return of 4.19%.

innovate

Linton wrote: »

Not quite. Unless I have made a mistake:

The RPI factor is (241.8/198.5) over 6 years

So the Santander factor is (241.8/198.5)*1.05 over 6 years

So the annual factor is ((241.8/198.5)*1.05)^(1/6) = 1.04187
or a return of 4.19%.

An overall return of 4.19% sounds a lot more likely than a similar AER figure.

Banks' own investment products are generally not good value at all.

missile

On the basis of my calculation, it did not seem to be an attractive product.

Based on your calculation, it seems even less atractive to me now.

Linton

innovate wrote: »

An overall return of 4.19% sounds a lot more likely than a similar AER figure.

Banks' own investment products are generally not good value at all.

The 4.19% is annual so if inflation stays the same the return is comparable with a fixed rate deposit.

missile

Linton wrote: »

The 4.19% is annual so if inflation stays the same the return is comparable with a fixed rate deposit.

That is the conclusion I came to and I would rather a fixed rate bond. :T

innovate

Linton wrote: »

The 4.19% is annual so if inflation stays the same the return is comparable with a fixed rate deposit.

Ah sorry, got befuddled by the numbers. Thkx for correcting me

sabretoothtigger

Inflation over the next ten years should out pace the last ten just from greater currency per goods available

missile

I do not understand that, could you explain ?

cheerfulcat

missile wrote: »

I do not understand that, could you explain ?

I think that Sabretoothtigger is referring to this -

http://en.wikipedia.org/wiki/Money_supply

sabretoothtigger

Was just listening to how rates were 16% in the 1970's over in USA as was ours? Theres a fairly substantial link to UK and not that much to doubt their massive increase in currency wont effect us also now.

A six year bond I reckon is much like a cheque you cant cash for six years. I want something adjustable if this kind of wave is coming my way, not sinking anchor