Index linked savings certificates

zippy1973

I invested a 8k inheritance in 2010 for 3 years (wished I had done the 5 year when the bonus was 1%) and in 2013 I rolled them over for another 3 years.


It is due to mature in January and I have no idea what to do. According to the calculator its worth around 9.6k. It is not money that I need but I would like to see it grow something obviously, I'm happy with how it has grown so far.


I realise no one can predict the future, part of me thinks just leave it where it is, it's tax free and if inflation rises again it will make good money. Part of me thinks move it onto my NS&I ISA, currently paying 1.5%.


Just interested on what others would do. Thanks

kidmugsy

My own instinct would be to keep rolling them over because they are irreplaceable. Revisit your decision on every anniversary of rolling them over: that's when withdrawing all the cash is least penalised.

In fact, I'd suggest splitting the money between the 3 year and 5 year issues, so that you can take out half without the remainder being penalised.

bowlhead99

The down side of bank accounts is that while you are guaranteed to get your money back, it is not guaranteed to be worth as much in real terms. So, you avoid 'investment risk' but the money might be worth less after inflation is considered.

With this product, you are guaranteed not to lose your capital AND it has inflation protection (albeit linked to RPI rather than your 'personal' experience of inflation which is different for everyone because we all buy a different mixture of bread, petrol, booze, TVs, cars and houses).

So, if you want to have your money stored as cash (i.e. no risk to capital) then it sounds like the perfect product because it eliminates the only other risk (inflation). If you are comparing to a cash ISA, the rate of growth that you or the ISA achieved in the past is irrelevant - your future payout depends on RPI inflation going forward from here. That could easily be 1.5% plus over the next couple of years (although unlike some cash ISAs, this product is not instant-access, penalty-free withdrawal).

Also, as kidmugsy says, keeping this product has an inherent 'option' value, because when they start to be expensive for the government to maintain, they stop letting new customers buy them - you can only have one by renewing a maturing one. So for example I might think they are a great product but am not allowed to get one. While you might think they are a great product and would be allowed to get one, because you already have a maturing one.

So, it's a good and desirable product that not everyone gets to have. I would probably count myself lucky, and keep it. However:

-1- if you want the money to stay as cash with limited growth prospects (except for keeping pace with inflation)... why is that? Do you need to spend it in X years time, is it your 'rainy day fund' for emergencies? If instead it is an inheritance that you do not need to access for the longer term, consider putting it into an S&S ISA or pension which actually have the prospect of growing in real terms over the longer term.

-2- If you do need it to stay as a cash product with no downside risk and can't afford to risk it on S&S or pension 'investments' for better growth, but are willing to cash it in and lose the ability to renew this product again in the future... then the best comparison is not a NS&I ISA at 1.5%. It should be the top paying cash accounts at 3-5%. You could fit the entire amount in a Santander current account and get 3% pretax, which is more than 1.5% net of tax even if you are a 45% taxpayer, and is instant access. Or if willing to have multiple accounts you could have some in Lloyds at 4% pretax and some in TSB at 5% pretax.

-3- The maturity is more than 4 months away so check the interest rates and your expectations of interest rate or inflation changes, nearer the time. But the basic arguments won't have changed.

masonic

I'd say 1.5% is nowhere near a sufficiently tempting rate to give up the inflation protection offered by the certs. It's pretty unlikely you'll get less than that if you rolled them over again. Of course there are better accounts available than that NS&I ISA, so it really depends on your circumstances and which accounts you are already making use of. 'Tax free' might well apply to all of your savings in the next tax year, depending on how much you have.

torbrex

Mine are coming out as I am not confident in living through another term

ManAtHome

kidmugsy wrote: »

In fact, I'd suggest splitting the money between the 3 year and 5 year issues, so that you can take out half without the remainder being penalised.

Do you see any extra value in the 5 year ones - last couple of years I've rolled a couple of 5 year into 3 year as they both now offer the same rate (RPI+0.05%).

zippy1973

Well, the time has come to make my decision since I first posted............still not sure what to do!

Chickereeeee

Easy then renew, as you can always back out.
If you do not renew, you lose it

C

Stubod

I suppose it depends on whether or not you need the money, and what othr "savings" you have. For me I would leave them in. We have some up next year,but we also have some ISA's. We are planning to retire so will need some dosh in the short term. With interest rates being so low my preference is to maintain the index linking for long term "safety", So I will sacrifice the ISAs first..summary of reasons:-

Low interest rates on ISAs / and now the annual ISA limits have increased we can always put £30k back in per year (2 people)..(ie 60k between 2 people in 13 months)
NSI - no sign of Government re-introducing these anytime soon., so once money is out will be unable to put back in, and at least your money is protected against inflation for the longer term.
.

zippy1973

Thanks for the replies. I'm going to let them roll over for another term. Don't need the cash, saving for retirement! 43, mortgage free and put a good amount each month into my isa so I can hopefully retire earlier