No-brainer to renew NS&I index-linked certs?

AnotherJoe

MX5huggy said:

It’s CPI not RPI on renewed certificates.

I should stop skim reading, I saw RPI and missed the box that said "changing to CPI in future" (I paraphrase)

Thanks

alinkliter

There is an option of 2 years as well. Think I will do that, don't see any benefit of tying up for 5 years for the same interest rate.

ColdIron

What if they no longer allow you to roll-over before your 2 years is up?

jamei305

What's their rationale for renewing these at all given the magnitude of of their rate reductions on other products to meet the government fundraising requirements?

underground99

jamei305 said:

What's their rationale for renewing these at all given the magnitude of of their rate reductions on other products to meet the government fundraising requirements?

It's understandable that if they're not trying to attract a lot of new money at a potentially high absolute cost, they wouldn't want to offer them as a new live product to all and sundry with an uncapped inflation matching guarantee. But the people who still hold them are a diminishing breed - there will be some natural attrition as some people cash them in ; the max you can have was limited in the first place and they've not been available to people who didn't already have them, for a number of years. If they are criticised for offering them at all, they can say it doesn't cost them much in real terms. 

So, rolling it over at 0% CPI costs them nothing in real terms and avoids the maximum annoyance from all the people who held them (many of whom may be older, trying to preserve capital in retirement and more likely to vote or moan).

naedanger

If you cancel cash in one of these bonds a day after their anniversary date what is the penalty? Is it just 3 months of interest at 0.01%, so £0.25 per £10,000?

If so then is there an argument for renewing with a 5 year term since you have an option to cash in just after any anniversary at virtually no cost?

Or am I reading the early redemption penalty incorrectly?

eskbanker

naedanger said:

If you cancel cash in one of these bonds a day after their anniversary date what is the penalty? Is it just 3 months of interest at 0.01%, so £0.25 per £10,000?

If so then is there an argument for renewing with a 5 year term since you have an option to cash in just after any anniversary at virtually no cost?

Or am I reading the early redemption penalty incorrectly?

I believe you are reading it incorrectly, the interest rate is CPI plus 0.01%, so the early access penalty is dependent on the prevailing inflation rate but, barring deflation, will be significantly higher than 0.01%.

naedanger

eskbanker said:

naedanger said:

If you cancel cash in one of these bonds a day after their anniversary date what is the penalty? Is it just 3 months of interest at 0.01%, so £0.25 per £10,000?

If so then is there an argument for renewing with a 5 year term since you have an option to cash in just after any anniversary at virtually no cost?

Or am I reading the early redemption penalty incorrectly?

I believe you are reading it incorrectly, the interest rate is CPI plus 0.01%, so the early access penalty is dependent on the prevailing inflation rate but, barring deflation, will be significantly higher than 0.01%.

HMRC say:
"If you cash in early we will deduct a penalty from your payment, equivalent to 90 days’ interest on the amount cashed in. And you’ll lose the index-linking on your whole Certificate for that investment year."

So is your reading of the penalty that applies a day after an anniversary date:
1) 25% of (0.01% plus a year's CPI) 
2) 25% of 0.01% plus 3 months CPI
3) 25% of (0.01% with CPI linking)
4) something else?

They also talk about growth and interest. If the growth is part of the interest it seems confusing.

alinkliter

ColdIron said:

What if they no longer allow you to roll-over before your 2 years is up?

Possible but I'm not keen on "What if" unless there is inside info.
Just read through my maturity pack as only received it today and the 2 year certificate is only available when renewing an existing 2-year certificate. So it's either a 3 year or 5 year.

naedanger

IanManc said:

eskbanker said:

naedanger said:

If you cancel cash in one of these bonds a day after their anniversary date what is the penalty? Is it just 3 months of interest at 0.01%, so £0.25 per £10,000?

If so then is there an argument for renewing with a 5 year term since you have an option to cash in just after any anniversary at virtually no cost?

Or am I reading the early redemption penalty incorrectly?

I believe you are reading it incorrectly, the interest rate is CPI plus 0.01%, so the early access penalty is dependent on the prevailing inflation rate but, barring deflation, will be significantly higher than 0.01%.

No, the interest rate is 0.01% .

Savings Certificate investments grow each year by the appropriate figures for "index-linked growth and interest". That is how it is termed in the Key Features leaflet.

There are two consequences of cashing in early.

Firstly, you lose all the index-linked growth for the whole investment year in which you cash in on the full amount of the certificate, even if you only cash in part of it. That means if you cash in only part then the remainder left invested only gets interest of 0.01% for the whole investment year and no index-linked growth, and the bit you take out - or all of it if you cash the lot in - doesn't get any index-linked growth for that investment year either.

Secondly, there is a "penalty deduction" of 90 days interest, the current rate of which is 0.01%, from the amount withdrawn.

So if you are going to cash in early then the best time is just after the anniversary of opening, because the loss of index-linked growth will be minimal; and the penalty will be the 90 days interest, which is unavoidable whenever you cash in early.

So provided you are never going to wish to encash only part of the bond then the 5 year term seems the better one compared to the 3 year bond, since the cost of encashing the whole of it (a day after an anniversary) is only £0.25 per £10,000?

So you have effectively got a guaranteed option of the same terms as the 3 year bond (other than the option to take any reinvestment options available at that time) with an option to continue for 5 years. Whereas the 3 year bond has no  guaranteed option to continue for 5 years.

(I suppose there are still scenarios where you might have been better choosing a lower term e.g. you will definitely want money after 2 years, or you think the reinvestment terms on offer after 2 years will be better than the existing terms and also won't be available after 5 years.)