NS&I index linked certs renewal

masonic

caper7 said:

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)?

Prior to 2008, it was not unusual for the BoE base rate to be above the inflation rate, but those linkers paid RPI+1% or more, so could still complete with conventional savings. I think there is an unfounded assumption that if current (CPI) inflation falls back to 2-3%, the base rate would be cut. While that could be driven by a recession, it ain't necessarily so.

poppystar

masonic said:

poppystar said:b

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.

I was simply pointing out that it isn’t “the rate of inflation at maturity” that matters, as the previous post said, but that it is each year’s inflation. So if inflation dropped only in the final year the effect would not be as great as if it was only calculated at maturity as suggested.

masonic

poppystar said:

masonic said:

poppystar said:b

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.

I was simply pointing out that it isn’t “the rate of inflation at maturity” that matters, as the previous post said, but that it is each year’s inflation. So if inflation dropped only in the final year the effect would not be as great as if it was only calculated at maturity as suggested.

It's a 1 year bond, so it is the rate at maturity that matters, as I stated. This rate (i.e. the September 2024 rate if a bond was taken out today) will be the change in CPI over the account term to the nearest month. That figure will not be known until October 2024.

For a different product with a longer term, you would be correct that index values or a combination of annual percentage figures would be needed.

Stubod

..had a few of these for a good many years, but now we are renewing for 3 years rather than 5 as we get nearer to SP age, and as I undestand it you no longer have the option to "cash them in early". I like the "guarantee" of tax free and index linking....

xylophone

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? 

I asked relative who bought £15,000 worth in  August 2011 and still has them.

Apparently NS&I send an annual statement and he received his around a month back  - current value a smidgeon over £27,000.

caper7

xylophone said:

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? 

I asked relative who bought £15,000 worth in  August 2011 and still has them.

Apparently NS&I send an annual statement and he received his around a month back  - current value a smidgeon over £27,000.

I have one bought in May 2011 for £15000.
Valuation on statement May 2023 a little over £23000.
Feeling pretty peeved. 😠

caper7

I think while they will underperform if interest rates are higher than inflation, that hasn't happened for a good 15? years.
I think perhaps they can be considered as worth having as part of a varied portfolio, a little like the bond elements of those Vanguard lifestrategy funds. Sometimes they'll shine when other things won't?
But I think reducing 5 year ones to 3 years is definitely a good idea.
Ultimately if they keep up with inflation you're at least not losing ground which we have been with all other savings products, including ISA's for over a decade I believe.
Tl/dr:  will keep it but reduce from 5 to 3 years.

DavidAC

It would be nice to be rewarded with a return a worth while amount higher than inflation in return for locking away. There have very rarely been any account in decades that would though, especially after tax. If the MPC keeps base rate above inflation for any length of time (it is still not there), with saving accounts following I would be all too pleased my non index linked accounts will be making in real terms. Before this period of high inflation there was talk of the base rate going negative. Do you trust the MPC will keep base rate at a level that will maintain the value of savings?

masonic

DavidAC said:

It would be nice to be rewarded with a return a worth while amount higher than inflation in return for locking away. There have very rarely been any account in decades that would though, especially after tax. If the MPC keeps base rate above inflation for any length of time (it is still not there), with saving accounts following I would be all too pleased my non index linked accounts will be making in real terms. Before this period of high inflation there was talk of the base rate going negative. Do you trust the MPC will keep base rate at a level that will maintain the value of savings?

There were long periods in the 2010s when it was possible to beat inflation using savings accounts, there were only a couple of brief periods where inflation was above 2.5%. In the early 2010s a 5 year fix could be had for 5%, which was an amazing deal. Later on in the decade the real return was small, but mostly positive.

Provided the MPC hold rates at about this level, real returns will naturally recover as external drivers of high inflation subside. If you doubt that, then index linked gilts currently guarantee an attractive RPI linked return.

caper7

CPI linked now. Unfortunately.