Premium Bonds down to 4.40% for March 2024 draw

masonic

hallmark said:

Albermarle said:

FIREDreamer said:

eskbanker said:

Andreg said:

It seems NS&I are increasingly targetting wealthy savers who can afford to tie-up their money in five year deposits with no withdrawals.

Based on....?

Index linked certificates renewals are now tied in for the duration with no access at all. I won’t be renewing mine.

Looking at previous threads on this you will be an outlier.
Despite the new restrictions, where else can you get a 100% safe investment that is guaranteed to increase with inflation?

Doesn't an index-linked Gilt offer exactly that?

(serious comment as I was under the impression it did.)

Not exactly, no. Index linked Gilts can index downward during deflation as well as upward during inflation, whereas NS&I ILSC have a high water mark, so you can never lose nominal capital. It's not a risk that would put me off, but it is there.

poppy10_2

hallmark said:

Albermarle said:

FIREDreamer said:

eskbanker said:

Andreg said:

It seems NS&I are increasingly targetting wealthy savers who can afford to tie-up their money in five year deposits with no withdrawals.

Based on....?

Index linked certificates renewals are now tied in for the duration with no access at all. I won’t be renewing mine.

Looking at previous threads on this you will be an outlier.
Despite the new restrictions, where else can you get a 100% safe investment that is guaranteed to increase with inflation?

Doesn't an index-linked Gilt offer exactly that?

(serious comment as I was under the impression it did.)

No it doesn't. There's a lot of misunderstanding if how index linked gilts work.

If you'd bought a ten year index linked gilt in early 2022, just before inflation ramped up, your investment would have gone down in value by nearly 40% over the subsequent year. 

hallmark

poppy10_2 said:

hallmark said:

Albermarle said:

FIREDreamer said:

eskbanker said:

Andreg said:

It seems NS&I are increasingly targetting wealthy savers who can afford to tie-up their money in five year deposits with no withdrawals.

Based on....?

Index linked certificates renewals are now tied in for the duration with no access at all. I won’t be renewing mine.

Looking at previous threads on this you will be an outlier.
Despite the new restrictions, where else can you get a 100% safe investment that is guaranteed to increase with inflation?

Doesn't an index-linked Gilt offer exactly that?

(serious comment as I was under the impression it did.)

No it doesn't. There's a lot of misunderstanding if how index linked gilts work.

If you'd bought a ten year index linked gilt in early 2022, just before inflation ramped up, your investment would have gone down in value by nearly 40% over the subsequent year. 

I'm talking about buying a short-term linker and holding until maturity, i.e. this kind of thing:
https://www.youtube.com/watch?v=Vh5FmZRjBpo

I don't think the scenario you're talking about applies in those circumstances. Unless I misunderstand completely this is a risk-free tax-efficient way of achieving what ISLCs offer (with the deflation caveat mentioned above).

masonic

poppy10_2 said:

No it doesn't. There's a lot of misunderstanding if how index linked gilts work.

If you'd bought a ten year index linked gilt in early 2022, just before inflation ramped up, your investment would have gone down in value by nearly 40% over the subsequent year. 

This really does demonstrate that there's a lot of misunderstanding of how index linked gilts work. If you'd bought, say TR24 on 3rd Jan 2022, you'd have to pay a 10% premium over par. The clean market price would have gone down about 7%. By March 2024, the price would be down 9% as it would redeem at par. So your overall return would be positive due to the 21% uplift in RPI and the interest received. Final outcome around +12% over two and a bit years. Which is what happens when you buy index linked gilts for more than their face value - you lock in a capital loss equivalent to the premium you pay. There is currently no need to pay a premium on index linked gilts and hasn't been since interest rates have been hiked. They weren't a serious consideration for investors until that high premium evaporated.

There is no loss of value of TR22 purchased at the beginning of 2022 of "nearly 40% over the subsequent year", the worst you can say is that the clean market price went down 7% (before index linking), or up about 7% after index linking. Again, should come as no surprise when buying at a 10% premium and knowing they'll end up at a 0% premium that this will reduce the return.

<looks up at thread title and scratches head>