Interest rate for Indexed Linked National Savings

Adjer

I have just received my annual statement for my Indexed linked Savings Certificates which states that the % interest on the capital amount for the year was 0.55%,  August 2019 to July 2020. The cpi rate  month on month was: (1.5,  1.7, 1.7, 1.7, 1.4,  1.6,  1.7,  1.6, 1.4, 1.2, 1.4, 1.9.)%. The average of  these 12 numbers has has got to be much higher than the 0.55% they have used to calculate my meagre return. Can Martin or anyone explain to me why this is so?

eskbanker

Don't know where you're sourcing those figures from but in any case you seem to misunderstand the use of indices and percentage increases - there's no averaging involved and the annual increase figure used by NS&I (and reported by the media) is simply the difference between the index value now versus a year ago (which would be 1.9% here if your figures were accurate), expressed as a percentage.

The most recent figures are those for June, published in July at https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/june2020, which show the CPI index in June 2019 as 107.9, growing to 108.6 in June 2020, and hence a 0.6% year-on-year increase (rounded to one decimal place).

Last month's increase (May, published in June) was nearer 0.55%, and they always use whole years so wouldn't be starting any analysis from last August yet.

Albermarle

Can Martin or anyone explain to me why this is so

Although an MSE forum 'Martin ' has no input .

I also had my statement recently and it was also 0.55% for the reason Eskbanker explains above. 

Adjer

Index Linked Savings Certs are supposed to be proof against deflation. 0.55 % is well below the monthly rates I published. eskbanker  Thanks for your comments. The rates I in my posted are published rates for cpi each month, for 12 months August 2019 to July 2020 & I would expect my annual return to be about the same, other wise they are pointless. Just to go into it further, NSI used CPI (annual rate) start as May 2019  (107.9)   ending in May 2020 (108.5) which gives a difference of  0.6. They say 0.55 & that's what they paid me. It's only an error of 0.05 but in small amounts it is significant. Also my account is August to August but they used May to May.
This money last year under rpi rules made £645 but only  £145 this year. I think there a little bit of statistical manoeuvring  going on here to savers disadvantage. I think so. What do others think??

masonic

Adjer said:

Index Linked Savings Certs are supposed to be proof against deflation. 0.55 % is well below the monthly rates I published. eskbanker

I assume you mean inflation and not deflation. The "monthly rates" you posted are not monthly rates, they are annual rates for different periods of time to that which you are comparing. For example the August 2019 figure covers the period from August 2018-August 2019, which is irrelevant to the interest rate you have earned over the past 12 months. The figures you posted are also in disagreement with the official figures published by the Office of National Statistics. Presumably you are not stating the ONS figures are wrong.

Adjer said:

This money last year under rpi rules made £645 but only  £145 this year. I think there a little bit of statistical manoeuvring  going on here to savers disadvantage. I think so. What do others think??

It's very clear that the move from RPI to CPI is to savers disadvantage because CPI is consistently lower than RPI due to the way in which it is calculated. But I don't think you can attribute the whole £500 drop in interest to "statistical manoeuvring". It is also the result of the government's recent economic policies and global events.

eskbanker

Adjer said:

0.55 % is well below the monthly rates I published

That's because the rates you quoted are wrong.

Adjer said:

The rates I in my posted are published rates for cpi each month, for 12 months August 2019 to July 2020

No they're not - the official CPI figures are published at the ONS gov.uk site I linked to (see table 1 there, in section 2), which bear no relation to yours.  I already asked you where you found yours but, perhaps unsurprisingly, you omitted the source....

Adjer said:

Just to go into it further, NSI used CPI (annual rate) start as May 2019  (107.9)   ending in May 2020 (108.5) which gives a difference of  0.6. They say 0.55 & that's what they paid me. It's only an error of 0.05 but in small amounts it is significant.

They don't simply subtract one figure from the other, they (rightly) express the variance as a percentage, so 108.5 is an increase of 0.55% over 107.9, and therefore the error you refer to is yours not theirs.

Norman_Castle

I had an annual statement a few months ago that was very low. Isn't it due covid and a stagnant economy?