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  • FIRST POST
    • MSE Guy
    • By MSE Guy 18th Feb 11, 5:13 PM
    • 1,628Posts
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    MSE Guy
    MSE News: Post Office to launch inflation-beating savings
    • #1
    • 18th Feb 11, 5:13 PM
    MSE News: Post Office to launch inflation-beating savings 18th Feb 11 at 5:13 PM
    This is the discussion thread for the following MSE News Story:

    "The Inflation Linked Bond will ensure some savers better the rise in the cost of living over the next five years ..."


    Last edited by MSE Guy; 21-02-2011 at 9:15 AM.
Page 1
    • ic451uk
    • By ic451uk 20th Feb 11, 10:25 AM
    • 28 Posts
    • 15 Thanks
    ic451uk
    • #2
    • 20th Feb 11, 10:25 AM
    • #2
    • 20th Feb 11, 10:25 AM
    "The Inflation Linked Bond will ensure savers better the rise in the cost of living over the next five years ..."
    Originally posted by MSE Guy
    Unless you're a tax-payer, of course, in which case it won't - as the taxman will swipe a proportion of the "inflation-linking". This is why the NS&I Index-Linked Savings Certificates worked and were so popular - they were tax exempt, so they did beat inflation.

    Which is paradoxically why NS&I had to stop selling them, as they were better than most fixed term savings bonds. Only problem is, if NS&I reinstate them, there'll be so much pent-up demand they'll sell £billions overnight - and promptly have to withdraw them from sale again.

    It is a little bit unfair of the Post Office to launch a product that sounds a bit like the NS&I one, given that the Post Office is one of the main NS&I channels. What are the chances that some confused depositors go for the Post Office product not realising that it's not the NS&I one? Obviously everyone here on MSE is far too switched on to fall for that!

    IC
    • SnowMan
    • By SnowMan 20th Feb 11, 10:52 AM
    • 3,188 Posts
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    SnowMan
    • #3
    • 20th Feb 11, 10:52 AM
    • #3
    • 20th Feb 11, 10:52 AM
    Thanks for the news item, it looks a good account.

    Of course people will think of it as RPI+1.5% and it is important to note that is completely wrong. The RPI + 1.5% looks like a deliberate attempt by the Post Office to mislead in my view. We'll have to see how it is marketed next week.

    In fact because no interest is paid on interest it brings it down to RPI + 0.8% if inflation is 5% pa over the 5 year period.

    If inflation is 9% over the period it becomes RPI - 0.2% so it doesn't beat inflation at all for a non-taxpayer. So it isn't GUARANTEED to beat inflation on the info available. Although that said it is likely to be a very good account to have if inflation is 9%.

    The account term doesn't start until 26 May so the money may only get a poor rate until then which may make the account worse than it seems also.
    Last edited by SnowMan; 20-02-2011 at 11:49 AM.
    I came, I saw, I melted
    • dggar
    • By dggar 20th Feb 11, 11:43 AM
    • 586 Posts
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    dggar
    • #4
    • 20th Feb 11, 11:43 AM
    • #4
    • 20th Feb 11, 11:43 AM
    If I'm calculating this correctly the example for the Post Office of £3250 would pay (£3250*0.8)=£2600 for an ordinary rate tax payer.

    It would seem that the Yorkshire account based on an ISA might be a better bet.
    • dggar
    • By dggar 20th Feb 11, 12:06 PM
    • 586 Posts
    • 280 Thanks
    dggar
    • #5
    • 20th Feb 11, 12:06 PM
    • #5
    • 20th Feb 11, 12:06 PM
    A further thought:

    If inflation (RPI) is 5% for this year but gets back to target of 2% for the following 4 years the Post office payout would be £2050

    If inflation was 0% in the following 4 years the payout would be £1250.
    • alanq
    • By alanq 20th Feb 11, 12:07 PM
    • 4,154 Posts
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    alanq
    • #6
    • 20th Feb 11, 12:07 PM
    • #6
    • 20th Feb 11, 12:07 PM
    Link in OP has an unwanted space in its URL and so does not work.

    This is what is required.
    http://www.moneysavingexpert.com/news/banking/2011/02/post-office-to-launch-inflation-beating-savings

    "Using the example of a deposit of £10,000 and an annual RPI increase of 5% each year of the five-year fixed term, this is what the inflation-linked accounts would pay before tax is deducted:
    • Post Office. £3,250.
    • Yorkshire account 2. £2,962 (including introductory offer).
    • Birmingham Midshires. £2,625.
    • Yorkshire account 1. £2,600 (with introductory offer)" N.B. The Yorkshire accounts are also available as cash ISAs.
    Last edited by alanq; 20-02-2011 at 12:15 PM.
    • Consumerist
    • By Consumerist 20th Feb 11, 2:56 PM
    • 5,226 Posts
    • 2,610 Thanks
    Consumerist
    • #7
    • 20th Feb 11, 2:56 PM
    • #7
    • 20th Feb 11, 2:56 PM
    The launch announcement comes after it was announced this week RPI hit a two-year high of 5.1% in January.
    According to ONS data, RPI inflation was 5.3% in April and 5.1% in May last year. Then you need to go back to July 1991 for RPI inflation to be above 5.1%.

    Don't know where this "two-year high" comes from.
    Warning: In the kingdom of the blind, the one-eyed man is king.
    • Loughton Monkey
    • By Loughton Monkey 20th Feb 11, 3:20 PM
    • 8,706 Posts
    • 12,428 Thanks
    Loughton Monkey
    • #8
    • 20th Feb 11, 3:20 PM
    • #8
    • 20th Feb 11, 3:20 PM
    Let's not forget that - assuming no more VAt increases for a while - then RPI inflation will drop next January by around 2% compared with what it would otherwise have been.

    Do we have any 'moles' in the Post Office?

    If "Merv" buys some himself, then "I'm in".
    • VT82
    • By VT82 21st Feb 11, 7:54 AM
    • 1,041 Posts
    • 878 Thanks
    VT82
    • #9
    • 21st Feb 11, 7:54 AM
    • #9
    • 21st Feb 11, 7:54 AM
    I can't get over the non-compounding nature of it. I can understand why they don't want to offer a compounding option - it would be impossible to accurately hedge with derivatives if they were to compound at an unknown annual pay-rate. But if they don't want to offer it, then they should pay the the annual interest to the customer, not keep it for themselves paying no interest!

    What a con!!!
  • john s
    I can't get over the non-compounding nature of it. I can understand why they don't want to offer a compounding option - it would be impossible to accurately hedge with derivatives if they were to compound at an unknown annual pay-rate. But if they don't want to offer it, then they should pay the the annual interest to the customer, not keep it for themselves paying no interest!

    What a con!!!
    Originally posted by VT82
    Bit strong. It is what it is. It pays simple interest, and your capital and interest is locked away for a five year term. Take it or leave it.
    • MarkFromCornwall
    • By MarkFromCornwall 21st Feb 11, 8:57 AM
    • 785 Posts
    • 515 Thanks
    MarkFromCornwall
    Bit strong. It is what it is. It pays simple interest, and your capital and interest is locked away for a five year term. Take it or leave it.
    Originally posted by john s
    It's not simple interest as I have always understood it. I've had accounts that pay simple interest and the interest has been paid to me annually so that I can invest it elsewhere. If I understand this new PO account correctly they effectively put the interest into an account that doesn't pay interest for the rest of the five years.
  • john s
    Simple interest is merely interest on which interest isn't paid. It might be paid out annually (for the investor to do with what they wish) or it might not.

    EDIT: SnowMan makes a good point at post #3. This account does not guarantee to beat inflation. The article suggests it will ("non-taxpayers are guaranteed to beat inflation").

    Even if the interest isn't taxed (leaving this to one side in other words) if RPI is around 8.5% (or more) for the five year term then this won't beat inflation. (Because it is simple interest and not compounded.) Happy to post the maths if anyone wants it.

    The Post Office should not claim that it will beat (RPI) inflation. And the MSE article should definitely point this out!
    Last edited by john s; 21-02-2011 at 10:44 AM.
    • VT82
    • By VT82 21st Feb 11, 11:35 AM
    • 1,041 Posts
    • 878 Thanks
    VT82
    Even if the interest isn't taxed (leaving this to one side in other words) if RPI is around 8.5% (or more) for the five year term then this won't beat inflation.
    Originally posted by john s
    Now we're getting there.

    What would the AER be if RPI was 5% for the 5 years. Not 6.5%! They're managing to hide the non-compounding con by not having to quote an AER because it's a structured product.
    Last edited by VT82; 21-02-2011 at 12:51 PM.
  • john s
    There's two issues here. One is that it pays simple interest. As I say, take it or leave it. Hardly a con.

    The other is that by linking the interest to RPI, it could be inferred that it will match/beat inflation.

    I've just looked on the PO website and it isn't advertised yet. The only reference I've seen to it being an inflation-proofed product is on MSE.
    • VT82
    • By VT82 21st Feb 11, 12:57 PM
    • 1,041 Posts
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    VT82
    If they wanted it to match inflation, plus have a 1.5% bonus each year (min 1.5% per year), they should have done the growth in the RPI between the start and the end (floored at zero), and added a 7.5% bonus. That way, only the 1.5% interest would suffer the 'simple interest' phenomenon, and the rest would match inflation.

    They've found a ruse, to make it sound like the same product, but made their cost of funds cheaper by buying an RPI 'cliquet' instead of an RPI 'tracker'. For some paths of RPI it will return more than an equivalent tracker (likely where there are at least one, and no more than four, years of negative growth in the five year period), but as you quite rightly say, it's not inflation-proof.
    Last edited by VT82; 21-02-2011 at 1:06 PM.
    • alanq
    • By alanq 21st Feb 11, 3:37 PM
    • 4,154 Posts
    • 2,733 Thanks
    alanq
    If they wanted it to match inflation, plus have a 1.5% bonus each year (min 1.5% per year), they should have done the growth in the RPI between the start and the end (floored at zero), and added a 7.5% bonus. That way, only the 1.5% interest would suffer the 'simple interest' phenomenon, and the rest would match inflation.
    Originally posted by VT82
    On the other hand, with that system, by crediting all of the interest in a single tax year one might be pushed into a higher tax band.
    • plunt
    • By plunt 21st Feb 11, 6:17 PM
    • 511 Posts
    • 203 Thanks
    plunt
    the YBS rpi linked version seems to say in the small print that you can withdraw the money early but will have to pay a penalty. i cant find what this penalty would be. can anyone help me find it? as if thats the case i may go for the annual income version then run away when better stuff is available. maybe the PO has a way out aswell?

    best regards

    p
  • fendibop
    the YBS rpi linked version seems to say in the small print that you can withdraw the money early but will have to pay a penalty. i cant find what this penalty would be. can anyone help me find it? as if thats the case i may go for the annual income version then run away when better stuff is available. maybe the PO has a way out aswell?

    best regards

    p
    Originally posted by plunt
    From t&c - not specific on fees but does confirm you would be returned less than your initial investment:

    What should I consider before investing?
     Please note that the Plan is intended to be held until the Plan Maturity Date. You should have enough emergency funds elsewhere as the Plan is not designed for Early Termination.
     Early Termination of the Plan will result in an Early Exit Fee (except in the event of death) and so you may get back less than you initially invested. The amount you will get back will not be greater than your Initial Investment regardless of the performance of the Index at the time of Early Termination.
    • Lumphammer1
    • By Lumphammer1 22nd Feb 11, 7:56 AM
    • 47 Posts
    • 7 Thanks
    Lumphammer1
    I was looking at the t & c this morning and also noticed the lack of any info on the Early Exit Fee. It does say that you may get back less than your initial investment. I don't like phrases like that.

    It looks like Credit Suisse sell the product through Yorkshire (who take 4% of deposits as commission!). Nice work, if you can get it.

    I spoke to a man at Yorkshire this morning who said he would phone me back with info on the Early Exit Fee. How they are allowed to sell a product like this without clarity on this, I don't know.
    • VT82
    • By VT82 22nd Feb 11, 7:57 AM
    • 1,041 Posts
    • 878 Thanks
    VT82
    It's on the Post Office site now: http://www2.postoffice.co.uk/finance/savings-investments/inflation-linked-bond

    They quite rightly call it 'inflation linked' rather than making any reference to inflation proofing your savings. You're also locked in for at least a month at 2.5% before the product kicks in.

    As far as structured products go, it's not bad, but if I had money to lock away, it wouldn't be going in one of these.
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