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NS&I ..renew or not ?
in Savings & investments
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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...?
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.
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?