NS&I index linked certs renewal

caper7

Firstly, I've always believed these were a no brainer and to keep them, but it's been a while so is that still the prevailing opinion?

Secondly, the 0.01 interest rate offered at renewal. Given interest rates are much higher now why hasn't this been increased? 
I realise the high inflation means they're currently paying quite a lot, but that may not last so a five year certificate might not look so great three years in? 

I also note, though I have no plans to withdraw early, that you now simply can't close early. 
Would it be advisable to renew but change from 5 to 3 years? 

Finally, you get the inflation rate of the maturity month, has anyone worked out if these really do keep up with inflation if you looked at your starting investment of say £15000 back in 2011 to the value now? 
Exactly how would one calculate that? 

Any thoughts welcome 

MDMD

I suspect the reason they keep the interest rate low is the government aren’t that keen on people renewing them given they will pay a lot in the CPI link so are in no mad rush to encourage it.  If they keep the fixed rate low then when inflation drops the cost to service them also drops.

masonic

Buying an individual index linked gilt looks superior. A more substantial real return linked to RPI until the end of this decade, and the option to cash in early for the prevailing market price should you wish.

caper7

MDMD said:

I suspect the reason they keep the interest rate low is the government aren’t that keen on people renewing them given they will pay a lot in the CPI link so are in no mad rush to encourage it.  If they keep the fixed rate low then when inflation drops the cost to service them also drops.

That's my thinking too. 
But even in their suppressed state are they still worth keeping? That's where my financial knowledge is lacking. 

caper7

Masonic. 
Interesting but perhaps a bit beyond my capabilities. 
I did have gilts, but I inherited them, so I wouldn't know how to buy them or which one to choose, but I will look into it. 
Thanks. 

ColdIron

ILSCs are unique. Index linked and tax free. Where else can you get that? In May mine increased by over 10%. Of course returns were lower than that in 2021

They have allowed me to roll mine over since 2011 and don't show much sign of stopping. The amounts involved are much lower, £17 bn compared to £108 bn in premium bonds

However as I get older and they no longer permit early withdrawal I may roll over for 3 years in 2026. I won't be cashing in any time soon

caper7

This is my thinking. 
When you consider the 6.2 market leading NS&I bond doesn't actually beat inflation at 6.7, and that's before tax... 

masonic

caper7 said:

This is my thinking. 
When you consider the 6.2 market leading NS&I bond doesn't actually beat inflation at 6.7, and that's before tax... 

There's no way of knowing whether or not 6.2% beats inflation, as the figure that matters is the rate of inflation at maturity. The rate between August 2022 and August 2023 of 6.7% is already in the rear view mirror. Things could be very different in 12 months time.

poppystar

masonic said:

caper7 said:

This is my thinking. 
When you consider the 6.2 market leading NS&I bond doesn't actually beat inflation at 6.7, and that's before tax... 

There's no way of knowing whether or not 6.2% beats inflation, as the figure that matters is the rate of inflation at maturity. The rate between August 2022 and August 2023 of 6.7% is already in the rear view mirror. Things could be very different in 12 months time.

But it’s calculated year on year so it’s the increase in CPI each year that is applied. Agree it could go down but it won’t have the same effect as if it was calculated only at maturity ie. after 3 or 5 years. 

caper7

Masonic.
True. 
It is why I find these forums so useful. One can get quite bogged down when trying to make decisions that one can lose perspective. 

So if inflation were to continue to rise, it seems to me there would be great reluctance from the BOE to raise interest rates higher than the inflation rate. They haven't bothered so far. Meaning these certs would be a good thing to have.
If inflation drops and interest rates with it, the question would be whether the interest rates would be higher than inflation. 
I'm not sure how likely that is? Were interest rates generally higher than inflation in more normal times (prior to 2008)?

masonic

poppystar said:

masonic said:

caper7 said:

This is my thinking. 
When you consider the 6.2 market leading NS&I bond doesn't actually beat inflation at 6.7, and that's before tax... 

There's no way of knowing whether or not 6.2% beats inflation, as the figure that matters is the rate of inflation at maturity. The rate between August 2022 and August 2023 of 6.7% is already in the rear view mirror. Things could be very different in 12 months time.

But it’s calculated year on year so it’s the increase in CPI each year that is applied. Agree it could go down but it won’t have the same effect as if it was calculated only at maturity ie. after 3 or 5 years. 

Not sure what point you were making here, but the 6.2% refers to interest over the next 12 months from a non-index linked NS&I Guaranteed Growth/Income Bond, and 6.7% refers to CPI over the previous 12 months. Only time will tell if a 6.2% fix taken out today will keep up with inflation over its term.