Which to go first, cash ISA or NSI index linked bonds

Stubod

Hi, next April our 2 year fixed rate ISAs are up (2.2%)...and around that time so are some of our 3 and 5 yr NSI index linked bonds......we may need some money to live of for a year or two..so just wondering which one you would give up first?....the NSI have been OK, (we have rollde them over twice now), but they are looking bit weak now. Not sure about ISA interest rates, but for the last 2 years we have been putting money into S&S ISAs instead, and we have "committed some further funds to these going forward, (monthly input).

thanks for any advise

redmalc

I can only comment on my situation,I put 15k in NS&I May 2011 and currently it's worth £17480, the isa,s have not done that so I would get rid of the isa,s because they are both tax free

bigfreddiel

ISA before ILSC, why, because you cannot by ILSCs at the moment. And also inflation is due to skyrocket soon

Preferably don't cash either in and move your cas ISA to an equity ISA.

fj

Stubod

Ta for the reply.....the NSI have done OK, but with inflation "static", not so sure about the next few years...mind you, ISA rates are pretty crap as well and next year there is no tax on interest (assuming below a certain amount)....ironic that both schemes introduced by the gov to encourage savings are now worth less than some current accounts.

Glen_Clark

Falling commodity and oil prices have reduced the inflation rate over the last few years. But they can't fall much more because they are on the floor. Everything I can see suggests a rise in UK inflation. So I'm sticking with NSI index linked bonds.

redmalc

I think we are going to be in for a spell of negative inflation very shortly which will make the decision more difficult because everything will be worth buttons

masonic

There will be a spike in the RPI % change figure when the figure is announced in February because of the deflation observed during January 2015. That's just an artefact though and I don't see inflation picking up by much in the short term. Look ahead another few years and the situation could be quite different.

The real question is how far behind inflation would interest rates be allowed to lag? The precedent set in the past is several percent, which would make ILSCs quite attractive if repeated.

kidmugsy

You can replace ISAs; you can't replace ILSCs.

polymaff

The latest ILSC yield is 0.82% (i.e. this is the present return figure for a one-year old ILSC) - which is pretty poor. Staying is a gamble that the RPI will rise AND that NS&I will not abandon the ONS RPI for the RPIJ (ONS-preferred approach) or the CPI (HMG-preferred approach).

Do you feel lucky?

DiggerUK

We have to decide what we do with our index linked next year as well.

As there is no way of knowing what is going to happen with interest rates, or inflation, then wait.

Don't quote me, but I see no Bank of England interest rate rises, maybe even negative rates for depositors. Inflation is definitely an unknown for now.
We might end up with a crazy situation were premium bonds, or cash under the mattress, are the only way to avoid the penalties of negative interest rates..._

Thrugelmir

Glen_Clark wrote: »

Falling commodity and oil prices have reduced the inflation rate over the last few years.

Oil price falls will drop out of figures next year. For inflation to fall another 1% oil price has to fall by around 25% from current levels. Seems somewhat unlikely.