NS&I Index Linked Savings Certificates renewal

Hatrick24

Hi, would really appreciate advice please:

Have received a renewal invitation from NS&I and the rate being offered is CPI +0.01% over either 2,3 or 5 years.

I understand that the interest used to be based on RPI and that CPI is lower but have no idea whether this still represents good value?

My gut feel is to keep it as it is tax free which is a benefit to me.

All advice welcome.. thanks.

AnotherJoe

Its better value than anything else thats risk free at the moment.

It also makes no sense to do anything other than take the maximum duration (5 years in this case) since you can cash them in after a yearly anniversary and still get the CPI for previous years.
eg if you extended for 5 years and then later decide you only wanted the 3 year, cash in after 3 years one day and its same as if you'd gone for 3 years. Whereas if you did do the 3 year, they might not offer renewals in 3 years time or not with as good terms.

Brilley

CPI rates are currently better than you will get in most ordinary savings accounts, particularly if you have a large amount saved. I have just renewed ours and extended from 3 to 5 years. OK you won't "make" money, but at least what you have is guaranteed and protected from inflation, (and is tax free),

If you want to do better you will have to consider S&S ISA's, but these carry some risk to your capital. For me I prefer to just "protect" my cash and these seem to offer the best "no risk" option...

bowlhead99

It is not a straight comparison of current CPI rates against current bank interest rates. The interest they will pay you is not the rate of CPI for the 12 months just ended which you can see online or in the papers. It will be the CPI over the period of the product, and the period is only now about to start, so the return is only known when you get to the end of it.

Basically CPI+0 would be saying that they will ensure that your money is worth as much to you in real terms at the end of the term as it is in the beginning, assuming the personal rate of inflation to which you are exposed (because of the mix of goods and services you would personally be spending the money on) is the same as the UK consumer prices index.

In reality, you might be putting the money away to buy a new car in five years' time in which case the rate you would prefer to get would be the inflation rate of the price of new cars, rather than the inflation rate of a basket of goods including cars and internet services and microwaveable packets of rice. But you are free to take it or leave it. No bank or building society is offering a savings account which pays you interest based on the price of things you buy.

As a savings account is essentially "putting money away so you can spend it later", the offer of a deposit product that literally monitors the price of goods and services and increases the account value to match, sounds wonderful. In fact it is such an attractive savings product that there is huge demand and they have had to restrict it to people like you with a maturing deposit - they don't let the rest of us access it.

Unless you actually need the money any time soon - and would have to pay a penalty to access the deposit early, in which case you might be better off using a regular high-interest paying bank account - I can't see a strong reason to give up this special type of account that the average person isn't allowed to have.

Hatrick24

Really helpful, thanks everyone!