Index-linked Savings Certificates - Significant Change

RSTime

Many readers may be unfamiliar with NS&I Index-linked Savings Certificates, which ceased many years ago, however, existing certificates can be renewed (for periods of up to 5 years). They were considered boring as they were linked to inflation plus a small amount, and became less attractive when they went from RPI and CPI. I kept mine as interest is tax-free and they have done very well during periods of high inflation.

There has been a significant (and in my view a nasty) change in the rules, if you decide to renew your certificate, you won't be able to cash it in before the maturity date and you'll need to hold the certificate for the full term. Most holders of these certificates will be over 50s I suspect and the majority in retirement and to tie down investments for a period of 5 years leaves a nasty taste, particularly as these investments have generated so little prior to the recent high inflation rates.

I suspect this is NS&I trying to pressurise customers to cash these investments in with a view to closing them (on the basis that many people no longer hold them)? I will certainly be holding onto mine given their tax status but wonder how many readers still have these and what their plans are following the rule change.

ColdIron

They are now in line with the majority of non-ISA fixed term bonds which don't allow early access either. They brought in the same changes for Guaranteed Growth/Income Bonds 4 years ago in 2019

RSTime

Hmm, a race to the bottom...  

trickydicky14

RSTime said:

Many readers may be unfamiliar with NS&I Index-linked Savings Certificates, which ceased many years ago, however, existing certificates can be renewed (for periods of up to 5 years). They were considered boring as they were linked to inflation plus a small amount, and became less attractive when they went from RPI and CPI. I kept mine as interest is tax-free and they have done very well during periods of high inflation.

There has been a significant (and in my view a nasty) change in the rules, if you decide to renew your certificate, you won't be able to cash it in before the maturity date and you'll need to hold the certificate for the full term. Most holders of these certificates will be over 50s I suspect and the majority in retirement and to tie down investments for a period of 5 years leaves a nasty taste, particularly as these investments have generated so little prior to the recent high inflation rates.

I suspect this is NS&I trying to pressurise customers to cash these investments in with a view to closing them (on the basis that many people no longer hold them)? I will certainly be holding onto mine given their tax status but wonder how many readers still have these and what their plans are following the rule change.

I think you will find many readers on this forum are familiar with NS&I index-linked certificates. As Coldiron says, just coming into line with the rest of the pack. To be fair, NS&I have some faults but have also given some good rates. I think you will find those holding these certificates are still happy to have them. I'm much older than 50 and will continue to hold what I have.

Albermarle

@RSTime
This issue of no early withdrawal was discussed in a couple of earlier threads, as one poster in particular was quite angry about it.
However you will find most of the regular posters on here tend not to get very emotional about these matters.
The rules have changed, and you as the customer have the choice whether to renew them, or take your money elsewhere. That's it.
Guaranteed safe investments that keep up with inflation are a pretty unique product, so remain  a welcome part of my finances.
Apparently there are still 365,000 holders with a value of 17 Billion Pounds. ( £46,500 each on average) 

trickydicky14

Albermarle said:

@RSTime
This issue of no early withdrawal was discussed in a couple of earlier threads, as one poster in particular was quite angry about it.
However you will find most of the regular posters on here tend not to get very emotional about these matters.
The rules have changed, and you as the customer have the choice whether to renew them, or take your money elsewhere. That's it.
Guaranteed safe investments that keep up with inflation are a pretty unique product, so remain  a welcome part of my finances.
Apparently there are still 365,000 holders with a value of 17 Billion Pounds. ( £46,500 each on average) 

I wish I had put that much in back in the day, still something is better than nothing.

Stubod

As above, there have already been several posts regarding this. Historically we changed all our 3 year bonds to 5 years as there was a school of thought that they would stop them completely at some point. 

However now we are getting older we are renewing them for 3 years at renewal as at some point we may well decide to "take the money and run"...but to date they have been our best "investement" by a country mile, so no complaints from me....

Andreg

For those of us who might need access to the money during the 3 or 5 year term, index linked gilts are now a better investment.   The coupons are low so there is little income tax to pay, but there is a large tax free redemption payment.  If you buy at current market prices and hold them to maturity the return is RPI + approx 0.5%  (a lot better than the CPI you get on index linked certificates).  You can sell them at any time prior to redemption albeit subject to the risk of fluctuation in the market price.

trickydicky14

Andreg said:

For those of us who might need access to the money during the 3 or 5 year term, index linked gilts are now a better investment.   The coupons are low so there is little income tax to pay, but there is a large tax free redemption payment.  If you buy at current market prices and hold them to maturity the return is RPI + approx 0.5%  (a lot better than the CPI you get on index linked certificates).  You can sell them at any time prior to redemption albeit subject to the risk of fluctuation in the market price.

Could you please give some info on how to purchase index linked gilts and some background reading, as this is new to me thanks.

hallmark

Albermarle said:

@RSTime
This issue of no early withdrawal was discussed in a couple of earlier threads, as one poster in particular was quite angry about it.

Disgusted rather than angry (and still think it's very shabby behaviour).  Introducing a notice period (even a long notice period) with large penalties for early withdrawal would have been far more reasonable.  This change fundamentally changes the nature of this investment.  Not only that, but unlike other savings products which don't allow withdrawals, investors actually have no idea what rate they'll receive here. So you're being asked to tie up your money for as much as 5 years for a return that's a total unknown.

As others have pointed out, individual index-linked gilts look like a superior choice now, especially whilst they're linked to RPI. Unfortunately that's a choice that will in practice be beyond the understanding/capabilities of many ILSC holders.

Miser1964

Reckon I'll hold onto my index-linked bonds as there's every chance inflation will take off again in the UK IMHO