NSI Index-linked Savings Certificates

masonic

Index linked gilts are looking somewhat more attractive than these.

Newly_retired

I see no withdrawals are allowed but what happens in the case of the death of the holder? 

Swipe

Newly_retired said:

I see no withdrawals are allowed but what happens in the case of the death of the holder? 

They will be made available to the deceased's estate on death.

DavidAC

masonic said:

Index linked gilts are looking somewhat more attractive than these.

How do these work? I did a search and found L&G All Stocks Index Linked Gilt Index Trust I Acc Fund factsheet | Trustnet. I thought the value would be linked to inflation but this one and the sector is down heavily. NS&I ILSC seem a safer investment.

masonic

DavidAC said:

masonic said:

Index linked gilts are looking somewhat more attractive than these.

How do these work? I did a search and found L&G All Stocks Index Linked Gilt Index Trust I Acc Fund factsheet | Trustnet. I thought the value would be linked to inflation but this one and the sector is down heavily. NS&I ILSC seem a safer investment.

That's an index fund, holding all sorts of gilt durations and not allowing you to hold to maturity. If you buy an individual gilt and hold it to maturity, you'll get a fixed real return. You can sell at any time, but if you do the current market price becomes relevant. All gilts mature at face value (normally £100). For example, buy TR26 (maturity 22/03/2026) and at the current price you'd get RPI+1.35% using RPI figures starting and ending 3 months prior to purchase/maturity.

See https://www.yieldgimp.com/index-linked-gilt-yields for other options.

DavidAC

Looking at how to buy them I found HL. From what I could see there is a minimum 1% buying and selling cost + AMC. That reduces their appeal for me. The buying cost is significant, especially if held for a short term, the AMC is significant if held for a longer term. If cashed in early another 1% to sell as well. Maybe there is a lower cost than going through HL that makes it worthwhile.

masonic

DavidAC said:

Looking at how to buy them I found HL. From what I could see there is a minimum 1% buying and selling cost + AMC. That reduces their appeal for me. The buying cost is significant, especially if held for a short term, the AMC is significant if held for a longer term. If cashed in early another 1% to sell as well. Maybe there is a lower cost than going through HL that makes it worthwhile.

HL's online trading fee is £11.95, so it would work out at about 1% if you bought about £1,000, but only 0.1% if you bought £10,000. The AMC (0.45% capped at £45 per year) does make HL one of the more expensive options. Spreads are very small indeed, some have remarked at getting better than the published market price at the time of their purchase.

A cheaper alternative for longer term is iWeb, albeit you'd have to pay a one-off £100, but trading is then just £5 and no AMC. iWeb would be worthwhile if you wished to buy index linked gilts on an ongoing basis.

This needs to be weighed against the difference in rate and index linking measure, with ILSC returning CPI+0.01% (6.81% based on inflation in year to July 2023) vs ILG paying RPI+1.35% (10.35% based on inflation in year to July 2023). This means it would have only taken a single £10,000 ILG purchase for the extra returns to pay for the iWeb £100 opening fee and £5 trading fee over less than a year, and dwarfs the HL AMC. Historically, RPI is not normally over 3% higher than CPI, and typically the difference in overall rate would be expected to be closer to 2% while the ILSC interest rate component remains low.

John464

masonic said:

DavidAC said:

Looking at how to buy them I found HL. From what I could see there is a minimum 1% buying and selling cost + AMC. That reduces their appeal for me. The buying cost is significant, especially if held for a short term, the AMC is significant if held for a longer term. If cashed in early another 1% to sell as well. Maybe there is a lower cost than going through HL that makes it worthwhile.

HL's online trading fee is £11.95, so it would work out at about 1% if you bought about £1,000, but only 0.1% if you bought £10,000. The AMC (0.45% capped at £45 per year) does make HL one of the more expensive options. Spreads are very small indeed, some have remarked at getting better than the published market price at the time of their purchase.

A cheaper alternative for longer term is iWeb, albeit you'd have to pay a one-off £100, but trading is then just £5 and no AMC. iWeb would be worthwhile if you wished to buy index linked gilts on an ongoing basis.

This needs to be weighed against the difference in rate and index linking measure, with ILSC returning CPI+0.01% (6.81% based on inflation in year to July 2023) vs ILG paying RPI+1.35% (10.35% based on inflation in year to July 2023). This means it would have only taken a single £10,000 ILG purchase for the extra returns to pay for the iWeb £100 opening fee and £5 trading fee over less than a year, and dwarfs the HL AMC. Historically, RPI is not normally over 3% higher than CPI, and typically the difference in overall rate would be expected to be closer to 2% while the ILSC interest rate component remains low.

But what about tax?
I understand returns on NSI Index linked bonds are tax free

soulsaver

There is no £100 fee at iWeb atm.

John464

soulsaver said:

There is no £100 fee at iWeb atm.

I've already got an account with iWeb and logged in to get a quote
There was about 1% difference between bid and offer
So 0.5% for each trade I guess?
Which is far more than I have been paying buying Vanguard and iShares Equity ETFs
Still not too to bad I guess
But what of the tax treatment?
I understand there is no tax on NSI Index linked - I have held 3 for about 15 years but never cashed one in.
If my MP was any good I would write and ask why they have done this?
As far as I can see, if the holder needs the money for an emergency, medical care or whatever, its in no one's interest to withhold it.  The holder would pay a reasonable penalty which benefits the taxpayer, and be less dependent on the state which again benefits the taxpayer.