NS&I 2011 5 year - no downside to 5 year renewal?

AnotherJoe

No this isn't another "shall I renew" thread of which there are several

This is for those renewing only.

If you wish to renew, is it a no-brainer to choose 5 years, because you can always cash out earlier and still get the RPI for the previous years, so as long as you cash just after after a yearly period? I was going to do 3 years but this just occurred to me, might as well do 5.

So you've locked in for the 5 years (who knows if renewals will be available in 2 or 3 years time especially if inflation rises) but could cash out on the same deal as if you had selected for 2 or 3 years, should you need to.

As long as you dont cash out well into a year, at say 2 years 11 months for example but just time it right and do 3 years and a few days, I cant see any real downside.

Have I missed something?

[Deleted User]

If you go for 5 years, and at the 3 year point there is a fabby renewal (eg RPI plus 0.5%), you can't go for it. You can access your money on a loss of 90 days interest (negligible loss at 0.01%) and with minimal index linked loss if timed well, but you won't be able to access the renewal rate and you're locked out of ILSC unless they are on sale. Best to go for 3 year term. I've split mine, half 3 years and half 5 years.

coyrls

AnotherJoe wrote: »

who knows if renewals will be available in 2 or 3 years time especially if inflation rises

We don't know but renewal has always been an option even when, such as now, you can't put new money in.

AnotherJoe

Thanks folks, something to think about. So why did you split it Hattie? Why not all in for three years ?

[Deleted User]

Yeah, I think I should have done it all for 3 years. I suppose I was thinking along the lines of the possibility that, in 3 years time, they may not be offering renewal at all, or maybe only at CPI. This is a risk, although probably a small one. By choosing a 5 year term, at least half the maturity amount will benefit from index linking to RPI for a further 2 years. Normally you get a higher rate of interest for a longer term, but not with these, so I think the shorter term is the one to go for. Others may have a different take.

Archi_Bald

As I don't need the money in the foreseeable future, I will let mine roll over for another 5 years

[Deleted User]

That's an important consideration, Archi Bald, but, on the assumption that you won't need the money for 5 years, it's not a case of just going for the 5 year term. You're locked into a miniscule return over inflation for 5 years, with the only alternative being to cash in and lock yourself out. The OP posited that it's a no brainier to go for 5 years. I don't think it is as clear cut.

Rollinghome

Deleted_User wrote: »

If you go for 5 years, and at the 3 year point there is a fabby renewal (eg RPI plus 0.5%), you can't go for it. You can access your money on a loss of 90 days interest (negligible loss at 0.01%) and with minimal index linked loss if timed well, but you won't be able to access the renewal rate and you're locked out of ILSC unless they are on sale. Best to go for 3 year term. I've split mine, half 3 years and half 5 years.

On balance I'd tend to agree with Joe though splitting between the two is a reasonable compromise if you're unsure.

I'd be mightily surprised to see the interest rate increased before the bonds go on general sale again - much as I'd like it. I can't see why they would think that necessary while there's still a unmet demand for the bonds from new savers.

I'd be less surprised at a switch from RPI to CPI for new issues.

As you say the 90 day loss of interest for cashing in on say £15k would be less than the price of a second class stamp and if done just after an anniversary there should be no loss of indexing.

What may be more of an irritation for anyone who doesn't use up their new savings allowance is that they won't benefit from IL certs being tax-free.

AnotherJoe

Deleted_User wrote: »

That's an important consideration, Archi Bald, but, on the assumption that you won't need the money for 5 years, it's not a case of just going for the 5 year term. You're locked into a miniscule return over inflation for 5 years, with the only alternative being to cash in and lock yourself out. The OP posited that it's a no brainier to go for 5 years. I don't think it is as clear cut.

Thats my point, you arent locked in !

bowlhead99

Effectively if you put all your money into the 3 year product now, then in 2019 when interest rates might still be low you will have all your money needing to renew for a fixed term at that low rate, locking in a terrible renewal rate until 2022 or beyond, or need to exit the product. They may even decide (in a break from tradition) not to offer a renewal option in 2019.

So, no harm in having some in the other (5 year) product, accepting the disappointing rate, but staggering your renewal dates so that in 2021 you get a tranche to renew at that 2021 rate (which might be significantly better than the 2019 rate). That better rate from 2021's product compared to 2019's product, which you'd have for a year until 2019's can renew again in 2022, might not be better enough to compensate you for missing out on a good rate from 2019 to 2021... but it might.

Some people might prefer to stagger and others not. Personally if I had them I wouldn't be cashing them in now, but I don't have them anyway so the point is moot...

Stubod

I am still going for 3 years as we have a few of these with various maturity dates...so we can consider other options going forward...and I am happy to take a punt on the fact that they will continue to let you "role them over...."...(that's the kiss of death then.....)