NS&I index linked saving certificates.

Kilmar

But the governor of the Bank of England tells us what is to come....negative rate of inflation.

I will be cashing in Index linked savings certificates before that happens.

masonic

Kilmar wrote: »

But the governor of the Bank of England tells us what is to come....negative rate of inflation.

Correction: he tells us what he thinks is to come, and often gets it wrong. Have a look at this chart of the difference between actual inflation and what was forecasted. MPC seems to fairly regularly underestimate inflation since the financial crisis, and by quite a margin.


http://www.bankofengland.co.uk/publications/Documents/speeches/2013/speech653.pdf

Chris75

He was also talking about CPI & not the RPI on which these bonds are based.


Go ahead & cash your bonds if you wish but I am happy to keep mine.

alanq

Kilmar wrote: »

But the governor of the Bank of England tells us what is to come....negative rate of inflation.

I posted a link earlier about what the BoE is currently forecasting for the medium term. Note that RPI inflation, which is what determines the return on National Savings Certificates, has tended to exceed CPI inflation.

alanq wrote: »

Referring to CPI not RPI....
"Inflation is projected to fall further in the near term, as the recent falls in energy prices continue to be passed through to petrol prices and utility bills. Inflation begins to rise in the second half of 2015, as those effects and the recent fall in food and other goods prices drop out of the twelve-month comparison. As the remaining margin of domestic slack continues to be absorbed, inflation is projected to return to target at the two-year point before rising a little further." The "target" referred to is 2%.
http://www.bankofengland.co.uk/publications/Pages/inflationreport/infrep.aspx

lisyloo

Just a thought but is the governors job to accurately forecast? Or is it to send appropriate non-shocking so that markets are prepared but not shocked i.e. Spin.

lisyloo

If anyone has any view/advice/comments for my personal situation then I'd appreciate it.
I have 6 issues.
3 are from 2013 to mature in 2016 (rolled over from 2010).
These will have the 90 day penalty and a small increment relative to RPI.
3 are from 2011 to mature in 2016.
These will not have the 90 penalty but a slightly larger increment.

I have a mortgage BOE+0.49 (currently 0.99%) to pay off in 2018 so I was going to take cash them in during 2016.

I am thinking of now keeping them till 2016 as the ones I'd want to cash in are the ones with a 90 day penalty.
I don't think it's going to make much difference either way.
The anniversaries are between April and July.

bowlhead99

Personally I don't have much 'cash' or 'savings account-like' holdings within my overall savings and investments and pensions. I'm relatively younger and so am aiming for long term growth rather than a fixed amount of interest that bobbles around at inflation level or worse.

However, if I was at an age or in a financial position where I could not take so much investment risk and needed to keep a good stack of money in something that could not go downwards in capital value (e.g. cash savings) then the only concern for that cash pile is that it returns as much as inflation so I'm not losing money in real terms.

The reality is that over the long term , bank and building society savings accounts (or current accounts, other than short term promotions) can't be expected to deliver a return higher than inflation. You give them the money and demand to have it back in one piece with no investment risk, so they won't be able to invest it for a high return themselves, and so will just give you the minimum they can afford, i.e. inflation or perhaps less.

Therefore the very best you can reasonably expect to get in the long term on your cash savings, if you can't always dance between the very highest
-paying shorter-term options, is inflation. The ILSCs give you an inflation guarantee together with zero risk of them going bust. That is a great product which means demand for it is sky high which means they are not available for everyone to have as much as they would like. If you are in the club you can keep renewing them but people like me who don't have any, would buy one if we could, and can't.

If these could be bought and sold between individuals on the second-hand market, rather than having to be cashed in, they would be priced a bit like the government's other index linked bonds that change hands all the time between big institutions like pension funds. In other words, at the moment, they would be priced above face value, so much so that the real terms return would actually be negative, so keen are people to have something with a relatively low level of long term inflation risk.

So, my opinion, if I had one I wouldn't cash it in for face value, it's true value is better than that. I would keep it and hope to be able to keep renewing it when I wanted.

But if you don't have a lot of spare cash and have to decide between a relatively low rate of inflation on an ILSC and a known rate of return on a Granny Bond and you are not going to live very long anyway, I can see why you might want to go to the one that looks like it will pay the most in the short term. As long as you understand that what inflation is this month (when calculated from prices a year ago) is not really relevant. It is inflation over the next few years and the few years after that which determine how much they pay out.

If petrol goes from £1.30 to £1.10 over a year, as it did, that will cancel out other price rises in the economy. But when petrol goes from £1.10 to £1.09 the year after it will not do nearly as much to cancel out other price rises in the economy. When petrol goes back from £1.10 to £1.20 it will combine with other price rises in the economy to give quite a big inflation number.

Of course, nobody knows if and when these things will happen. But they are things you should consider, because ILSCs and other saving opportunities that pay nice rates are multi-year products. If you don't know when something will happen, a guarantee that you'll be protected against it is something you should not give up lightly.

lisyloo

then the only concern for that cash pile is that it returns as much as inflation so I'm not losing money in real terms

There are also concerns about losing your money if a bank goes bust.
This is not as outlandish as it first sounds because there was a bank in Iceland that went bust.
UK banks are covered by te FSCS up to £85K, but NSandI are covered by HM Treasury and are therefore about as safe as you can get.
In past times the tax free nature was also useful for people who'd used their ISA allowances. There will still be some couples with > £30K to tuck away per annum but there aren't very many.

bowlhead99

Yes absolutely - that's why I mentioned zero risk of them going bust in my post.

Effectively the goal for my cash is for it to return as much as inflation and I can't expect more than that. If the depositee goes bust, or I get a nice headline rate but pay tax on it, my return may not achieve inflation. I use 'making as much as inflation' to be after tax and after defaults or opportunities lost while waiting for a compensation scheme to pay out.

ILSCs therefore are a great proposition as the return is not eroded by tax or compromised by someone going bust. The only 'harm' that can come to the money is that inflation eats away at its real value. And as they give you an RPI guarantee, it's pretty much bulletproof!

Of course, your personal inflation rate that you experience in the real world may not equate to RPI and there are terms and conditions about what you give up if you need to cash in early. But that's the same with any product. So, I think they're a great product. The tax free nature is great for those who are taxpayers and would like the flexibility of their ISA or pension tax wrappers to be available to put around other cash savings or investments instead.

MumOf2

Just a brief addition to this discussion.


I have 3-year savings certs due to mature in early March 2016, so I'm nearing the end of another investment year.


Therefore, the valuation figure I see today (which reflects the inflation figure for 17/02) on the online calculator (which only includes index linking, not the 0.25% interest) is the final one for this investment year. If you add in the interest element, it results in a return of 1.41% over the past year. Getting a bit borderline whether to cash them in just into the next investment year and just forgo the c.£3.50 representing 90 days' interest then bung it into TSB/Lloyds/Santander.


However, if I log in today under my own NS&I number and password and ask for a valuation (which again reflects the inflation figure for 17/02 and includes interest), it results in a return of 2.13%. Which is actually quite a good return for last year and I'd be more inclined to leave them where they are and hope that by March 2016 RPI isn't at a lower level than it is now.


The interest amount is the same but the inflationary element is 36% more on my own log in page than on the online calculator.


I had noticed in previous years that a personalised valuation (over the phone) or the amount on the end of investment year statement is often higher than the figure given on the online calculator. But this year it's significantly different.


It will be interesting to see the end of year statement on 3rd March.


MumOf2


P.S. Not quite so brief. Sorry...