Query: NS&I Index-linked Certificates interest

martinman3

The other way of looking at it is that unless your savings have been earning more than 8.00% AER for the last 4 months then they have already been eroded.

How many people on these forums ask endlessly about transferring from one cash ISA to another for an extra 0.25/0.5% sometimes with a small loss of interest during transfer ?

How many people feel pleased because they are earning 6.5/7.0%, taxable or tax-free makes no difference, fixed for x years ?

They may have been doing well for the first few months but now they are losing out and they probably don't realise it yet because the RPI figures are averaged over the last 12 months at 4.2% !

nicko33

Jonbvn wrote: »

There is no doubt that these certs should form a part of anyone's portfolio. The only draw-back is that you must tie your money up for at least a year.

Not strictly true.
You can withdraw any amount at any time, but money withdrawn during the first year attracts no interest at all.
The drawback is loss of interest, not being tied up.

Lyncroft

On 1 May 2007 I invested in a 3 year certificate for £15000. According to their calcualtor it's now worth £15888. Not bad at all.

whu

can i please clarify one thing - when they calculate how much you would earn in the first 12 months do they take the average of the RPI over that period and then add the gauranteed figure - (the 3 year and five year rates have just gone up - for the 3 year you get .55% above RPI for the first 12 months) - so do they add up the RPI values for the 12 months then divide by 12 and add .55% eg average RPI 4 plus .55% so if you invested £15000 would you get £682.5 after the first 12 months?

IGK

whu wrote: »

can i please clarify one thing - when they calculate how much you would earn in the first 12 months do they take the average of the RPI over that period and then add the gauranteed figure - (the 3 year and five year rates have just gone up - for the 3 year you get .55% above RPI for the first 12 months) - so do they add up the RPI values for the 12 months then divide by 12 and add .55% eg average RPI 4 plus .55% so if you invested £15000 would you get £682.5 after the first 12 months?

I believe £682.50 is correct.

Year by year rates

3-year 17th Issue
purchase price + Index-linking for year 1 + 0.55% of purchase price = 1st anniversary value

So Index-linking is 15,000 * 0.04 = £600
Plus 15,000 * 0.0055 = £82.50.

nrsql

whu wrote: »

can i please clarify one thing - when they calculate how much you would earn in the first 12 months do they take the average of the RPI over that period and then add the gauranteed figure - (the 3 year and five year rates have just gone up - for the 3 year you get .55% above RPI for the first 12 months) - so do they add up the RPI values for the 12 months then divide by 12 and add .55% eg average RPI 4 plus .55% so if you invested £15000 would you get £682.5 after the first 12 months?

RPI is an index. It has a value when you invest and then another value a year later - the difference is what is used to calculate your interest.
The RPI percentage rate published is the difference from the index value the previous year.

It doesn't matter what happens during the year.
If it starts at 100 - increases to 500 steadily during the year and then the day (or calculation point) before your anniversary drops back to 100 it will mean you get 0% (+.55%). i.e. it's not an average of what happens during the year.

It's also why the monthly change in RPI does not relate to the annual rate. The annual rate depends on the monthly change compared to the monthly change a year ago.

nrsql

From the t's & c's

16. An index-linked value will be calculated as V x B/A where:
(a) 'V' is the value of the Certificate at the beginning of the index-linked period (this will be the purchase price or the value at an anniversary date);
(b) 'A' is the Index figure applicable to the calendar month in which the first day of the index-linked period falls (this day will be the purchase date or an anniversary of it); and
(c) ‘B’ is the index figure applicable to the calendar month in which the day after the final day of the index-linked period falls. This will be the maturity date, an anniversary date, or the day after the last completed month for which index-linking is earned.


With the provoso
any anniversary value will never be less than the preceding anniversary value

chris1

Have I got this right? So if you bought today (when prices are pretty high) and in a year's time (whatever happened in the meantime) prices were about the same, you would only get the extra percentage, e.g. 0.7%? :eek:

In other words it's basically a gamble on what the inflation figure will be in 12 months time?

Doesn't seem like such a good idea, or have I misunderstood?

earlgrey_3

chris1 wrote: »

Have I got this right? So if you bought today (when prices are pretty high) and in a year's time (whatever happened in the meantime) prices were about the same, you would only get the extra percentage, e.g. 0.7%? :eek:

In other words it's basically a gamble on what the inflation figure will be in 12 months time?

Doesn't seem like such a good idea, or have I misunderstood?

That's it. I've heard that if prices actually fell they'd come round your house and take your telly away.

On the other hand that seems unlikely so it's a bet on whether inflation will continue at the present rate or if oil-prices etc will stabilise or fall. Looks like there'll will be both inflationary and deflationary pressures so not an easy calculation.

nrsql

chris1 wrote: »

Have I got this right? So if you bought today (when prices are pretty high) and in a year's time (whatever happened in the meantime) prices were about the same, you would only get the extra percentage, e.g. 0.7%? :eek:

In other words it's basically a gamble on what the inflation figure will be in 12 months time?

Doesn't seem like such a good idea, or have I misunderstood?

That's right but not many people expect inflation to come down in the near future.
The idea is that inflation reduces the worth of your money, the indec linking means that you keep pace in real terms and the extra increment means that you will gain.
RPI is currently 4.2% so (if you believe that) it means that you need to get 4.2% after tax on savings or your money is losing value.