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  • FIRST POST
    • MSE Guy
    • By MSE Guy 12th May 11, 11:40 AM
    • 1,628Posts
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    MSE Guy
    MSE News: NS&I revives inflation-beating savings certificates
    • #1
    • 12th May 11, 11:40 AM
    MSE News: NS&I revives inflation-beating savings certificates 12th May 11 at 11:40 AM
    This is the discussion thread for the following MSE News Story:

    "The five-year NS&I deal tracks the RPI inflation measure plus 0.5% on deposits between 100 and 15,000 ..."

Page 1
    • oldvicar
    • By oldvicar 12th May 11, 12:03 PM
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    oldvicar
    • #2
    • 12th May 11, 12:03 PM
    • #2
    • 12th May 11, 12:03 PM
    I'm intruiged that they chose to re-launch today, just before another lot of monthly inflation figures are due. I wonder if the April figures (due out soon) will bring a surprising change to headline rates.

    NS&I said in an email to me "we expect the issues will be on sale for a sustained period". I do hope so, but think they may sell out quicker than they expect.
    • frugalfran
    • By frugalfran 12th May 11, 12:07 PM
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    frugalfran
    • #3
    • 12th May 11, 12:07 PM
    Mervyn King's comment
    • #3
    • 12th May 11, 12:07 PM
    didn't he say very recently that he thought inflation would be 5% - perhaps he's on a bonus if they get zillions in!
    P.S What kept you MSE? This was on Radio 4 this morning before 0800! And repeated before 0900. we got an email from NS&I sent at 12.00 too!
    Last edited by frugalfran; 12-05-2011 at 12:09 PM.
    • oldvicar
    • By oldvicar 12th May 11, 12:09 PM
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    oldvicar
    • #4
    • 12th May 11, 12:09 PM
    • #4
    • 12th May 11, 12:09 PM
    I think that MSE Guy has just about managed to avoid suggesting that last year's headline inflation rate (5.3%) will be the rate paid going forward. It won't stop people misunderstanding, but I think MSE have heeded complaints from last time around about how to report the returns on these certificates. So thanks for this.
    • oldvicar
    • By oldvicar 12th May 11, 12:11 PM
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    oldvicar
    • #5
    • 12th May 11, 12:11 PM
    • #5
    • 12th May 11, 12:11 PM
    didn't he say very recently that he thought inflation would be 5% - perhaps he's on a bonus if they get zillions in!
    P.S What kept you MSE? This was on Radio 4 this morning before 0800! And repeated before 0900. we got an email from NS&I sent at 12.00 too!
    Originally posted by frugalfran

    I thought Mervyn said CPI inflation would top 5%. In 9 of the last 10 years RPI has been higher than CPI. I think its generally assumed that RPI will be 0.8 to 1.0% above the CPI rate on average.
    Last edited by oldvicar; 12-05-2011 at 12:17 PM. Reason: typos
    • michaels
    • By michaels 12th May 11, 12:13 PM
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    michaels
    • #6
    • 12th May 11, 12:13 PM
    • #6
    • 12th May 11, 12:13 PM
    Hmm - NS&I withdrew their last issue just before inflation started to spike - is the relaunch a strong signal that inflation will be a fair bit lower in 12 months time - after all why borrow in this way when they could get money in apparently more cheaply with a standard fixed rate product?!
    Cool heads and compromise
    • oldvicar
    • By oldvicar 12th May 11, 12:30 PM
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    oldvicar
    • #7
    • 12th May 11, 12:30 PM
    • #7
    • 12th May 11, 12:30 PM
    NS&I are only hoping to raise a net additional 2bn (in the range 0 to 4bn) this year - my guess is with the index linked product accounting for the lion's share.

    2bn is a very small part of borrowing requirement. But by offering to borrow SOME of the money it needs on an index-linked basis, the government can maintain a stance that it is commited to sound money and keeping inflation in check. Personally, I have my doubts about this!
    • Reaper
    • By Reaper 12th May 11, 12:31 PM
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    Reaper
    • #8
    • 12th May 11, 12:31 PM
    • #8
    • 12th May 11, 12:31 PM
    didn't he say very recently that he thought inflation would be 5% - perhaps he's on a bonus if they get zillions in!
    P.S What kept you MSE? This was on Radio 4 this morning before 0800! And repeated before 0900. we got an email from NS&I sent at 12.00 too!
    Originally posted by frugalfran
    To be fair I don't think the News section is really meant to be breaking news in the same way as the BBC. I think the idea is more to explain how news items affect you, is it good or bad etc, which takes longer to research.
    • nrsql
    • By nrsql 12th May 11, 12:37 PM
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    nrsql
    • #9
    • 12th May 11, 12:37 PM
    • #9
    • 12th May 11, 12:37 PM
    Hmm - NS&I withdrew their last issue just before inflation started to spike - is the relaunch a strong signal that inflation will be a fair bit lower in 12 months time - after all why borrow in this way when they could get money in apparently more cheaply with a standard fixed rate product?!
    Originally posted by michaels
    I think they withdrew it because it was too obvious that it was a market leading product (especially with the VAT hike coming) and was sucking up too much money - partly because of the lack of anything else to compensate for the risk.

    It's probably back not because they think that inflation will decrease but because the BOE rate will probably go up and other products will be competitive and there's less nervousness about banks being allowed to fail.

    I still think this is a bit of a no-brainer as a core holding and I think beats cash ISAs at the moment.
    • philc27
    • By philc27 12th May 11, 12:58 PM
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    philc27
    Does anyone know if RPI includes the VAT rise? If so, the inflation rate next year will be significantly lower once that 2.5% has been removed from the equation.
    • Jonbvn
    • By Jonbvn 12th May 11, 1:06 PM
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    Jonbvn
    Does anyone know if RPI includes the VAT rise? If so, the inflation rate next year will be significantly lower once that 2.5% has been removed from the equation.
    Originally posted by philc27
    I believe it includes the VAT rise.

    However don't forget that many items are lower or zero VAT rated such as food and energy bills.
    In case you hadn't already worked it out - the entire global financial system is predicated on the assumption that you're an idiot
    • oldvicar
    • By oldvicar 12th May 11, 1:07 PM
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    oldvicar
    Does anyone know if RPI includes the VAT rise? If so, the inflation rate next year will be significantly lower once that 2.5% has been removed from the equation.
    Originally posted by philc27

    It does. The VAT rise has temporarily boosted inflation by around 1.5% (ish) and this will automatically drop out next year. Not everything attracts VAT at the full rate so its not 2.5%. (I'm not sure of the exact figures but they can be found on the ONS website I think).
    • Stochasticity
    • By Stochasticity 12th May 11, 1:10 PM
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    Stochasticity
    Does anyone know if RPI includes the VAT rise? If so, the inflation rate next year will be significantly lower once that 2.5% has been removed from the equation.
    Originally posted by philc27
    The VAT rise took place in January 2011. The RPI relevant figures for the purposes of this investment are for a given five year period from March 2011 onwards only.
    • Stochasticity
    • By Stochasticity 12th May 11, 1:18 PM
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    Stochasticity
    I believe it includes the VAT rise.

    However don't forget that many items are lower or zero VAT rated such as food and energy bills.
    Originally posted by Jonbvn
    The VAT rise has no immediate impact. The only inflation that matters is inflation from March 2011 onwards. The vast majority of price changes as a result of increasing VAT will have already been priced in by that point.

    It does. The VAT rise has temporarily boosted inflation by around 1.5% (ish) and this will automatically drop out next year. Not everything attracts VAT at the full rate so its not 2.5%. (I'm not sure of the exact figures but they can be found on the ONS website I think).
    Originally posted by oldvicar
    It has temporarily boosted monthly inflation figures, correct. However, these are not what is used for the calculation of the index-linking, which is separate.
    • oldvicar
    • By oldvicar 12th May 11, 1:18 PM
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    oldvicar
    The VAT rise took place in January 2011. The RPI relevant figures for the purposes of this investment are for a given five year period from March 2011 onwards only.
    Originally posted by Stochasticity
    I entirely agree.

    But people commonly take a central assumption that inflation will continue at the 'current' rate.

    Because of the VAT rises in both 2010 and 2011, reported headline rates since early last year have been temporarily boosted. Although VAT changes have a real effect on prices the 'underlying' rate without the VAT change would have been reported as around 3.8% rather than 5.3%. Thinking about it this way may help people ignore some of the over-hype about the returns which can be expected.
    • philc27
    • By philc27 12th May 11, 1:20 PM
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    philc27
    The VAT rise took place in January 2011. The RPI relevant figures for the purposes of this investment are for a given five year period from March 2011 onwards only.
    Originally posted by Stochasticity
    What I meant was that the present 5.3% RPI rate includes the VAT rise that took place in January. When that rise falls out of the equation come next year, RPI will be significantly lower - although of course, as some of the other posters stated, not every item that makes up the RPI has 20% VAT applied.
  • opinions4u
    If you have a non-taxpayer in the house who's over 18, then the Birmingham Midshires 3 and 5 year options look a better bet, paying 0.75% or 1.50% above RPI.

    Note the trade-off on access though.
    • lisyloo
    • By lisyloo 12th May 11, 1:27 PM
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    lisyloo
    Yes, you are correct to point out that published figures are YOY.
    So (for example) if you compare prices in May 2010 and May 2011 then that compares some prices with VAT at 17.5% in May 2010 with prices in May 2011 with VAT at 2011, therefore the published rates are somewhat inflated.

    I personally don't think this is a hugely significant factor when comparing RPI and savings accounts.
    • oldvicar
    • By oldvicar 12th May 11, 1:32 PM
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    oldvicar
    If you have a non-taxpayer in the house who's over 18, then the Birmingham Midshires 3 and 5 year options look a better bet, paying 0.75% or 1.50% above RPI.

    Note the trade-off on access though.
    Originally posted by opinions4u
    Maybe if you only want a 3 or 5 year investment, but it isn't normal for the banks to offer such products. I hardly pay any tax, but I still like the NS&I product for the long term simply because even when it was withdrawn from general sale last year my maturing certificates were allowed to be re-invested again. I realise they can change the rules at any time but I'm hoping this policy will continue. My core savings should then be 'safe' even when I'm too old and doppy to manage them properly!
    • MarkFromCornwall
    • By MarkFromCornwall 12th May 11, 1:32 PM
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    MarkFromCornwall
    When that rise falls out of the equation come next year, RPI will be significantly lower.
    Originally posted by philc27
    I don't think the retail prices index has ever fallen, although it could in theory. It just goes up more slowly sometimes.
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