NS&I ..renew or not ?

ColdIron

The usual advice is that if you don't need the cash then roll them over. They are unique. Where else can you get tax free inflation protection? I certainly won't be cashing mine in

LessImpecunious

InvesterJones said:

LessImpecunious said:

Hello all - just wondering if the advice to renew NS&I index-linked certificates still stands (have some coming to maturity at end of this month)? Assuming we have reached a high in the CPI, and it is likely to drop over the next year at least, does that mean it's likely there will be no index-linking for at least the first year of any re-investment (and possibly longer if it takes several years for CPI to return to "normal")?

Why would there be no index-linking for the first year of any reinvestment? If the terms are CPI then you'll get CPI. It doesn't matter if the CPI is slightly less than the CPI it used to be.

I understood from all the info I've seen (inc. the annual statements from NS & I) that the index-linking used was the difference between the CPI over the year - e.g., in last year's statement Dec 2020 109.2, Dec 2022 115.1, giving a % change of 5.4%. I assumed that, as inflation is predicted to fall over the coming year this would be reflected in the index value, meaning that the Dec 2024 value would be likely to be lower than the Dec 2023 level, therefore there would be a negative percentage change - but maybe I have misunderstood, and the index value continues to rise even if inflation falls? Or I have misunderstood something else about the way these certificates work...?

Albermarle

No you have misunderstood inflation as well.

Say something cost £100 on Jan1st 2022. A year later it could cost around £110 if inflation was 10% . If inflation then drops to 5% then a year later it will cost £115.
Inflation rate going down just means prices are going up more slowly, but still going up.

LessImpecunious

Albermarle said:

No you have misunderstood inflation as well.

Say something cost £100 on Jan1st 2022. A year later it could cost around £110 if inflation was 10% . If inflation then drops to 5% then a year later it will cost £115.
Inflation rate going down just means prices are going up more slowly, but still going up.

OK, thanks! confusion caused because the NS&I info talks about the CP index, and uses figures (e.g., 109.2) rather than percentages, so I assumed this must be something different from CP inflation, and, just being paranoid, thought that maybe the index values could go down as well as up... from what you say I presume the CPindex is cumulative and this can't happen!

poppystar

Well, yes it could happen if we had deflation as opposed to inflation.  The CPI is based on 2015 - in other words the cost of the basket of goods it’s based on was set at 100 then. So if the price of that basket fell dramatically to less than its cost in 2015 then, yes, the CPI would be less than 100. It is currently 127.2. 

Chances of it happening though pretty much non existent with current economic climate. And if it did everything else would be so much cheaper that the loss of interest wouldn’t matter much as the money you’d have invested would buy you more when you got it than when you invested it because everything would be less expensive. 

GeoffTF

We have moved rapidly from a world where index liked gilts gave a guaranteed loss after inflation to one where they closely track inflation. Depending on the issue and the price on the day, they return either slightly more than inflation or slightly less. (They will be up-rated by RPI until the end of the decade, but the indexation will change after that.) There is very little tax to pay on the new style index linked gilts with coupons of 0.125%. (Gilts are not subject to Capital Gains Tax).

Index Linked National Savings Certificate renewals are up-rated by CPI + 0.01%. Index linked gilts are currently paying more than that. RPI inflation was 14% when I last looked. RPI has usually been about 1% more than CPI inflation. The new style index linked gilts have to be traded over the telephone. You are not likely to get good prices for small trades. If you pick a long dated issue and real interest rates rise, you will face a capital loss if you sell before maturity. If you pick a short dated issue, real interest rates may fall, and you will not be able to reinvest in anther issue on such favourable terms.

Renewing Index Linked National Savings Certificates is no longer a no brainer. Will it always be possible to renew them? Will they always be tax free? Will the renewal terms be improved? What will happen to index linked gilt prices? Will to tax rules for gilts remain unchanged?