Should I close my NS&I Index linked investment ?

STAVROS

My CPI linked NS&I 3 year investment did very well when inflation hit 10% but now CPI is about 2.5% I would be better off closing the account and getting 4.5% elsewhere ( Oxbury etc ). However once I close the account it is not possible to open another as NS&I no longer offer them.

trickydicky14

STAVROS said:

My CPI linked NS&I 3 year investment did very well when inflation hit 10% but now CPI is about 2.5% I would be better off closing the account and getting 4.5% elsewhere ( Oxbury etc ). However once I close the account it is not possible to open another as NS&I no longer offer them.

Correct me if I'm wrong but I thought now you can't cash them in until the term is up. As you say, you can never open a new one and who knows what inflation will do in a year or two, it's a gamble.

IanManc

trickydicky14 said:

STAVROS said:

My CPI linked NS&I 3 year investment did very well when inflation hit 10% but now CPI is about 2.5% I would be better off closing the account and getting 4.5% elsewhere ( Oxbury etc ). However once I close the account it is not possible to open another as NS&I no longer offer them.

Correct me if I'm wrong but I thought now you can't cash them in until the term is up. As you say, you can never open a new one and who knows what inflation will do in a year or two, it's a gamble.

The rule that you cannot cash in Index Linked Savings Certificates only applies to certificates renewed since 23 July 2023.

DRS1

The return on ILSCs is also tax free isn't it?

Stubod

This question comes up quite regularly. For years they were a good "safe bet" being index linkedd, but with current general savings rates exceeding inflation I guess they are not such a great idea, (particularly as you can no longer cash them in when you want). 

We have taken the option on renewal of withdrawing a large chunk, and only renewing the remaining balance for 3 years rather than 5.

masonic

DRS1 said:

The return on ILSCs is also tax free isn't it?

Yes, so this needs to be weighed against the alternative option. A standard savings account probably isn't the best alternative. There are no index linked options and interest is taxable. Whereas index linked gilts are a lot more similar, still track RPI for the rest of the decade, and have a tax free element (capital gain part).

MX5huggy

I’d stick interest rates are falling inflation is rising. 

DRS1

Yes there was a thread on here about cashing in ILSCs and switching to index linked gilts.  I can't find it now though.

SnowMan

DRS1 said:

Yes there was a thread on here about cashing in ILSCs and switching to index linked gilts.  I can't find it now though.

Possibly this one

https://forums.moneysavingexpert.com/discussion/6568906/ns-i-index-linkers/p1

Someone posted up as good a defence of ILSCs as is possible on that thread, but unless I've misremembered what thread that was on they seem to have deleted their post. For balance I'll try and summarise their main arguments

a) if in the future real redemption yields on index linked gilts of equivalent term (e.g. 3 years) switched to negative again (measured against expected CPI rather than RPI to which they are actually indexed until 2030), then ILSCs offered at CPI + 0.01% might become attractive again in comparison. But as ILSCs are only currently available to those renewing old ILSCs then holding on to them now when returns aren't good would be required to access any turnaround in the relative attractiveness of the offering.

b) as a side point to a) then future ILSCs might be offered again to existing holders in the future offering more than CPI + 0.01% (e.g. CPI + 2%)

c) if annual CPI is negative then ILSC don't reduce in value, but the indexation on index linked gilts would be negative

d) ILSCs are tax free. There is no capital gains tax on index linked gilts but the coupons are taxable if not held in an ISA or SIPP (albeit the coupons are typically quite small in relation to the capital gain)

I'm of the view ILSCs don't offer good value for money at the moment when you take into account the real returns and different inflation indices, although the difference has narrowed recently.  

Albermarle

I do not think you can see any savings or investment products in isolation ( unless you only have one of course).
So if you have investments ( maybe both inside or outside a pension) and cash savings in normal interest bearing accounts, then some money long term in an inflation linked product makes some sense ( to me anyway).

Notepad_Phil

Albermarle said:

I do not think you can see any savings or investment products in isolation ( unless you only have one of course).
So if you have investments ( maybe both inside or outside a pension) and cash savings in normal interest bearing accounts, then some money long term in an inflation linked product makes some sense ( to me anyway).

A +1 for this. Who knows what the future will bring, so I'm keeping mine as part of my diverse cash portfolio. There may come a time in my later life where I'll think about cashing them in (if nothing else to make life easier for my executors), but for now I'm planning on keeping them whilst they at least match CPI. It's not too far a stretch to imagine a position in a few years time where we might be back to a high inflation but low interest rate era, so I'm not going to irrevocably cash them in just because I can get a few percent more at this particular moment in time.

However if they are a large part of a persons savings or they have foreseeable needs that could use up a lot of their accessible cash, then I can see that cashing in at least some of them could make sense.