NS&I Index Linkers

Rollinghome

I've a sizeable tranche of IL bonds maturing in Feb next year.  That will still leave me with several issues under the old terms until 2028 and, as the renewal terms with a lock-in doesn't float my boat, the current plan is to exit all, or most, at maturity.

My understanding is that the minimum term, and lock-in, for renewals being offered is 3yrs.  Can anyone confirm that for me?

Stanley_St

Yes minimum term is 3 years now, though I have found that in response to a nice letter to NS&I, they can look favourably on releasing funds earlier.  
The new offerings are now worse value than buying index linked gilts on the stock market, and I can see no reason to renew any of them.

Rollinghome

Thanks to you both. I asked because I thought it would be a pain to phone them as it has been recently but got through immediately.  

Just got off the phone after speaking to a very helpful man who confirmed what you say. 5yr bonds, which I and Mrs R have, can only be renewed for 3 or 5yrs. So I'll be out.

Stubod

We have a similar problem. Up until recently I had always advised to keep renewing them, and increased all our 3 years to 5 years. 

But now as we get older, and average savings accounts give better than inflation returns, and your money is now locked in for the duration, it is not as clear cut as it was. 

As a bit of a compramise I have started to partially "cash them in". ie taking out everything over the initial £15k, and renewing them for the shorter (3 year) term.

SnowMan

Stanley_St said:

Yes minimum term is 3 years now, though I have found that in response to a nice letter to NS&I, they can look favourably on releasing funds earlier.  
The new offerings are now worse value than buying index linked gilts on the stock market, and I can see no reason to renew any of them.

Good point on the worse value.

The 1 1/4% index linked treasury (maturity 22/11/27) is currently offering a 0.475%pa real return above RPI inflation (it matures before the switch to CPIH happens).

And it sounds like the 3 year NS&I savings certificate offer at renewal is CPI + 0.01%.

Given that RPI is typically about 1% higher than CPI (it's 3.4% vs 2.3% at the moment) that's just over 1.4% pa differential in return, or about 4.4% differential over 3 years.

Even when you factor in the buying costs (including spread) and platform charges for holding index linked gilts, it's hard to see how renewing the index linked savings certificate won't lose you money relative to a pseudo equivalent index linked gilt in most scenarios.

And of course there is the option to sell the index linked gilt should you unexpectedly need the money rather than the savings certificate where there is no access during the 3 years.

I'm not advocating for index linked gilts for short terms (long term is a different matter) but just expanding on the worse value nature of savings certificates.  

Rollinghome

When I started buying them until NS&I stopped issuing they paid RPI plus 1%, and had paid up to 1.35% + RPI before that. Then they could be cashed with only a small penalty that was even smaller if timed well.

But the current offer of 0.01% + CPI and a lock-in is a long way off those original terms, with only the tax-free position unchanged. 

So I think they're trying to tell us something.  Either that, or they calculate that many who have held them this far will keep them no matter what they offer. Being fully locked in, allegedly subject to some leniency, will make renewal a difficult choice for those without other accessible savings.

ChesterDog

I'm wondering when they'll start paying LESS than CPI, but still retaining a link...

It's getting close these days.

DRS1

ChesterDog said:

I'm wondering when they'll start paying LESS than CPI, but still retaining a link...

It's getting close these days.

I thought the + 0.01% was a product of low interest rates generally.  I was hoping they might increase it now rates are higher.

Stubod

..can't see why they would increase it?? ....particularly as they have issued any new ones for years.

I assume they are doing everything they can to discourage people from keeping them??

nyermen

Mine is up next month, and I’m considering the same thing.  I think they don’t want to “close future issues” but just encourage closure.

I see the leaflet they sent along with the renewal notice has a section that I interpret as “they reserve the right to not offer any more issuances in the future” (ie. They could force this in future).

From my side, it’s my “emergency fund” so I needed the emergency access (penalty acknowledged).  So I am planning a change.

Interestingly, reading the leaflet they sent suggests I could part withdraw (eg. If it was worth 10k, I could withdraw 5k elsewhere, and invest the other 5k for another 3 years).  What I’m unclear on is the section that says “renew all of your current value, or invest up to 15k per issuance” - is this an old term that is no longer relevant and they forgot to remove, or could I withdraw most, and then “reinvest more in the future” (eg. Leave 5k now, and invest more up to 15k if I had it, in 3 years time).  Anyone got a view or should I call them?

Stubod

..not read the detail, but I didn't think there was an option to "invest more" at some point in the future??

If savings / ISA's are paying more there seems little point in renewing any of them unless you are of the opinion that savings rates will dip below inflation again at some point??