Santander Inflation Linked Bond

oldvicar

I guess the above discussion is about an earlier issue. We are now on issue 15 paying 102% of the increase in RPI.

I wanted to point out how misleading / wrong I think the MSE article on inflation linked savings is http://www.moneysavingexpert.com/savings/inflation-linked-savings#santander

The article says

Current Rate: RPI inflation rate + 2%, or 0.66% AER
Min deposit: £500 Max deposit: £2,000,000
Access: Online or in branch Pays out: 1 Oct 2018
Safety: Shared £85,000 UK protection with A&L, Asda, Bradford & Bingley and Cahoot (see Safe Savings)The Santander Inflation Linked Savings Bond (issue 15) pays the greater of either the percentage change in RPI plus 2%, or 0.66% AER interest, if you lock cash away until 1 October 2018. However you don't get paid the interest until the end of the term, and can't access your money earlier. You can deposit between £500 and £2 million.

The Santander bond does NOT pay RPI plus 2%.

It pays 102% of the RPI increase over the term.

Unless RPI exactly doubles then there is a significant difference.

To take an example quoted by Santander if the RPI goes up by 10% they pay 102% of the index growth, or 10.2%. That is nearly RPI plus 0.2%, not RPI plus 2%. Put it another way and it is approximately RPI plus 0.03% per year if RPI always rises steadily year on year.

Actually, its not quite that, because this 6 year bond pays out based on the increase in RPI over a period of 5 years and 11 months, even though your money is tied up for longer.

sabretoothtigger

So not as good as a post office one then

alanq

sabretoothtigger wrote: »

Was just listening to how rates were 16% in the 1970's over in USA as was ours?

UK's annual RPI inflation was over 25% for much of 1975. (26.9% in August)
http://www.guardian.co.uk/news/datablog/2009/mar/09/inflation-economics

missile

I remember it well. My mortgage was 14.6% :eek:

sabretoothtigger

Missile that is incredible. I know my parents paid similar but they wont believe it could happen now unfortunately.
My estimate is it will for any country that is a net importer (ie. we cant export our inflation, we'll have to hold higher rates to keep a tradable currency or be excluded from world trade - this would also be a repeat of past UK I think)

Imagine santa paying 25% on your bond, it would be bitter sweet. Those bonds fixed to 5% will half in value I guess

missile

Yes, it is difficult to see how we are going to get out of this mess. We do not seem to be able to learn from past mistakes.

oldvicar

sabretoothtigger wrote: »

So not as good as a post office one then

Much better - since there is no such thing available at/from the Post Office.

oldvicar

missile wrote: »

I remember it well. My mortgage was 14.6% :eek:

I can only remember 13.point.something.% mortgage rates in the 1980s

opinions4u

oldvicar wrote: »

I can only remember 13.point.something.% mortgage rates in the 1980s

15.4% in the early 1990s.

Yet they still borrow five times income and expect to last the distance these days.

JoeCrystal

But ironically, in time of high inflation, it is people with debts that are true winner. I suppose if you expecting that there will be high inflation in the future, then it may be better to take out the mortgage anyway while the rate is still low?

Cheers

Joe