NS&I Index-Linked Certificates - New Issue

Biggles

The new issue of Index-Linked Savings Certificates is now online (but I haven't got an email yet, despite being signed up for 'alerts').

But don't get too excited. The 3-year now only pays 0.25% above the RPI, and the 5-year 0.35%, so not quite as good as before.

However, it's still tax-free, so still has to be a pretty good bet for a standard-rate taxpayer who's used his ISA entitlement, and a very good bet for a high-rate taxpayer.

Fella

Biggles wrote: »

The new issue of Index-Linked Savings Certificates is now online (but I haven't got an email yet, despite being signed up for 'alerts').

But don't get too excited. The 3-year now only pays 0.25% above the RPI, and the 5-year 0.35%, so not quite as good as before.

However, it's still tax-free, so still has to be a pretty good bet for a standard-rate taxpayer who's used his ISA entitlement, and a very good bet for a high-rate taxpayer.

It's early & pre-coffee so my sums might be all wrong but aren't the new terms staggeringly bad? If RPI falls to 2% (easily possible since I have no doubt whatsoever G Brown will change how it's calculated if he wants to - not to mention the effect if house prices fall) then these are now very poor even for higher rate taxpayers?

I'd like to be proved wrong though, because I was intending to take out these.

Fella

These are my sums, if anyone out there is better than me at maths please feel free to correct them.

Based on a 5-year £15K investment, these would be the values at the end of the term, if the RPI was 2%, 3% or 4% throughout:

5-year 42nd Issue
Guaranteed compound rate over 5 years Index-linking + 1.35% Index-linking + 1.69% basic rate, 2.25% higher rate

Versus

5-year 43rd Issue
Guaranteed compound rate over 5 years Index-linking + 0.35% Index-linking + 0.44% basic rate, 0.58% higher rate


RPI 2%
£17,687.95 versus £16,833.90

RPI 3%
£18,560.39 versus £17,672.64

RPI 4%
£19,466.92 versus £18,544.48

£15,000 stuck in an account paying 6% for 5 years would be worth £17,901.53 even for a higher-rate taxpayer.

So it looks to me like all the value in these has gone.

Anyone else care to check me sums / disagree / agree etc?

regards
Fella

Biggles

After due reflection, I withdraw my suggestion that they're a 'pretty good bet' for a standard-rate taxpayer. I would think, now, there are plenty of other options available. They may still be a fair bet for a HR taxpayer, but even that could be a close-run thing at those rates.

Like Fella, I was going to invest, so would like to be proved wrong......

Fella

Yeah, I think I'm going to have to regrefully decline this generous offer.

Cutting the IR from 2.25% higher rate to 0.58% higher rate when interest rates are currently .25% HIGHER than when the last issue came out (5.50% versus 5.25%) is shockingly bad.

An incredibly strong indicator of what they're intending to do with IRs perhaps? Brown will obviously do anything he can to try & get re-elected, including any & every reckless risk he cares to take with the economy. Fixed-rate savings looking better than ever IMO.

nrsql

Could be because they're expecting RPI to increase compared to the savings rates.

RayWolfe

Funny ideas people have.
I think you will find that most institutions will pay as little as they need to, to draw in whatever cash they require. The Government and its agencies are no different, and wouldn't you, as a tax payer, be cross if they did? So, what d'you think might be happening? They don't need much more money; they are having floods of money during the current uncertainty; Gordon Brown has issued an edict that savers with NS&I should immediately be screwed ... don't think it can be that because people have a choice as to whether they want to make new deposits. (Old deposits continue at the old rates.)
Answers on a postcard please.

cheerfulcat

The rates for I-L certificates are closely tied to the yields on index-linked gilts, which are currently on the low side.

Fella

RayWolfe wrote: »

Funny ideas people have.
I think you will find that most institutions will pay as little as they need to, to draw in whatever cash they require. The Government and its agencies are no different, and wouldn't you, as a tax payer, be cross if they did? So, what d'you think might be happening? They don't need much more money; they are having floods of money during the current uncertainty; Gordon Brown has issued an edict that savers with NS&I should immediately be screwed ... don't think it can be that because people have a choice as to whether they want to make new deposits. (Old deposits continue at the old rates.)
Answers on a postcard please.

I didn't really follow your post but what I think is happening is that Brown knows a lot of people are very nervous about depositing with banks & has taken advantage of the situation by issuing an extremely poor value product, knowing that a lot of people will invest anyway.

RayWolfe

Aw, I think you did follow because you have come to the same conclusion, i.e. that deposit takers give as low a rate that they can get away with ... wouldn't you? Perhaps, you prefer to pay higher rates on your mortgage/loan/credit card ... perhaps not.

martinman3

Gordon Brown has issued an edict that savers with NS&I should immediately be screwed

Shouldn't that be Alistair Darling :cool:

I should remind people here that Index Linked Savings Certificates are not the only product which has an interest rate based on RPI+ a percentage.

The Leeds BS has the Inflation Buster Bond http://www.leedsbuildingsociety.co.uk/savings/inflation_buster_bond.html which is taxable and the Inflation Buster ISA http://www.leedsbuildingsociety.co.uk/savings/inflation_buster_isa.html which is not. They pay RPI+2.5% until 30th April 2010, penalties for withdrawal before then.

Even the Bond now compares favourably with NS&I for basic rate tax payers as, assuming RPI is 4%, 6.5% taxable at basic rate is 5.2% where NS&I would be only 4.25% tax free. For higher rate tax payers NS&I certs are better than the bond but not the ISA, although obviously you are limited to £3600 per year.