NS&I Index Linked 3 or 5yr

6022tivo

One of my index linked certs is up for renewal.
It is a 5 year one (Possibly renewed 5 years ago) which is a nice little £21190 value.

Options for me are auto renew for 5yr, or write and switch to a 3yr.

The rates are exactly the same, so I don't see why I wouldn't renew for 3 years instead of 5? My thought is the current offering of 0.01% fixed element may increase in 3 years time when it comes for renewal.
My negative thought is that they may stop allowing renewals, and I'll miss out on 2 years of index linking.


Thoughts?

moneyfoolish

6022tivo wrote: »

One of my index linked certs is up for renewal.
It is a 5 year one (Possibly renewed 5 years ago) which is a nice little £21190 value.

Options for me are auto renew for 5yr, or write and switch to a 3yr.

The rates are exactly the same, so I don't see why I wouldn't renew for 3 years instead of 5? My thought is the current offering of 0.01% fixed element may increase in 3 years time when it comes for renewal.
My negative thought is that they may stop allowing renewals, and I'll miss out on 2 years of index linking.


Thoughts?

I'm just about to renew the 3 year version but my documentation says it is 2.20% for the new 3 year version and 2.25% for the 5 year version.

Stubod

...yes, the only advantage with going 5 yrs if if they (govt), pull them early..ie don't let you renew, in which case you are better off going for the 5 yr option. Mine is due up next month and I will be sticking with 5 years...

(NB I think the above post is referring to a different product...ie fixed rate rather than Index linked bonds..)

RG2015

Stubod wrote: »

(NB I think the above post is referring to a different product...ie fixed rate rather than Index linked bonds..)

Yes, details on the link below.

https://www.nsandi.com/files/published_files/asset/pdf/historical-interest-rates.pdf

ColdIron

6022tivo wrote: »

The rates are exactly the same, so I don't see why I wouldn't renew for 3 years instead of 5? My thought is the current offering of 0.01% fixed element may increase in 3 years time when it comes for renewal.
My negative thought is that they may stop allowing renewals, and I'll miss out on 2 years of index linking.

It's a bet between NS&I raising the rate, something I see as very unlikely, and NS&I ceasing renewals or possibly linking to CPI instead of RPI. On balance, if you don't need the money, I'd go for the 5 year

moneyfoolish

Stubod wrote: »

...yes, the only advantage with going 5 yrs if if they (govt), pull them early..ie don't let you renew, in which case you are better off going for the 5 yr option. Mine is due up next month and I will be sticking with 5 years...

(NB I think the above post is referring to a different product...ie fixed rate rather than Index linked bonds..)

Yes, you're correct. Apologies! I was talking about the wrong product!

newatc

Agree with others, I'd (have) go for the 5yr. The RPI rate is currently higher than anything you can get elsewhere and the NSI is tax free (which helps some).

AnotherJoe

6022tivo wrote: »

One of my index linked certs is up for renewal.
It is a 5 year one (Possibly renewed 5 years ago) which is a nice little £21190 value.

Options for me are auto renew for 5yr, or write and switch to a 3yr.

The rates are exactly the same, so I don't see why I wouldn't renew for 3 years instead of 5? My thought is the current offering of 0.01% fixed element may increase in 3 years time when it comes for renewal.
My negative thought is that they may stop allowing renewals, and I'll miss out on 2 years of index linking.


Thoughts?

I think its much more likely they will stop renewals and you'll miss out on 2 years index linking, rather than they will raise interest rates to a degree that makes any difference for the last two years.

When RPI is running at 3 or 4% they have zero incentive to increase rates on top of that, and its much more likely they'll decide its not worth continuing them as its too expensive.

6022tivo

Some great points. Many thanks.

I've changed my mind and will keep the 5 years I think.

With the BOE raising rates, I thought it may be worth the 3 year. But NS&I have no reason to I suppose whilst RPI keep rising.

As I understand it they can change the RPI to CPI and vice versa at anytime during the 5 years anyway?

AnotherJoe

6022tivo wrote: »

As I understand it they can change the RPI to CPI and vice versa at anytime during the 5 years anyway?

Not so sure about that, can’t recall the small print but a much less aggressive move would be simply to change at the renewal date, eg if you renew it will move to CPI instead of RPI. And I think that is quite likely and another reason to keep the longer term. Doing that would cause much less of a rumpus in the letters page of The Times or on Twitter.

Also, again I can’t recall but I think this operates as a one way street, in that once you’ve gone to 3 you don’t get the option next time to go back to 5 ?

bowlhead99

6022tivo wrote: »

As I understand it they can change the RPI to CPI and vice versa at anytime during the 5 years anyway?

No, that's not the case. Like a variety of treasury-issued instruments (some with decades still to run) the product language says it is linked to RPI or an official replacement thereof (i.e. if what is currently known as RPI ceases to be produced).

RPI is already *not* designated as an official National Statistic because the govenrment prefer CPI which follows a methodology more consistent with what Europe and most of the rest of the world use, rather than RPI which is somewhat archaic. So CPI or CPIH which are national statistics in their own right, are used independently for other things.

So, RPI won't disappear and have CPI as its official replacement, because CPI is a different measure which already exists independently and has done so for many years.

If they wanted to, the government and Office for National Statistics could certainly stop producing what they currently call "Retail Prices Index, RPI" and replace it with a very similar "New Inflation of Retail Prices Thing, NIRPT" and from that point NS&I would have to use NIRPT to perform the interest calculation. It's unlikely to happen because lots of users worldwide rely on UK RPI in its current form for a whole variety of contractual commitments and ONS have a public interest to keep producing it. But NS&I can't just suddenly and unilaterally decide to flip the calculation mid-term and use CPI for paying your interest, while RPI is still being produced and hasn't been terminated with an official successor.

AnotherJoe wrote: »

Not so sure about that, can’t recall the small print but a much less aggressive move would be simply to change at the renewal date, eg if you renew it will move to CPI instead of RPI. And I think that is quite likely and another reason to keep the longer term. Doing that would cause much less of a rumpus in the letters page of The Times or on Twitter.

Yes, once your product term linked to RPI has finished, they can tell you there are no more renewals possible, or they can tell you that you are welcome to use their new product linked to a different inflation measure, and they may or may not offer that to new customers as well as existing customers. A change in the middle of the product term isn't going to happen.

If it were me, I would just hedge my bets and keep some on 5-yr and move some to 3-yr. Then you have two maturity dates with potentitally different offers available for each. It may be the offer being made to you at a renewal in early 2021 is better than the offer being made to you in 2023. Or it may be the other way around.

Also, having multiple maturity dates within your holdings - not knowing what will happen to product T&Cs in the future on renewals - generally allows for better access liquidity (i.e. extracting some of the cash penalty-free without waiting until the whole lot reaches its full term).