Index Linked Savings Certificates - clarification on how they work


T

Tom Bradbury

Just so I get my head around this....here's a link to the NS&I website so
you know where I'm getting the rates from:

http://www.nsandi.com/products/ilsc/rates.jsp

So, after reading the bumph on the website......If I invest £1,000 (say) for
three years, I will get RPI plus 1.3% on top of that, so say RPI is 4%pa
plus 1.3%, my actual return is 5.3% (tax free).

What's not clear is whether the RPI is set for a year based on a particular
month in the year (similar to how the government sets pension/wage
increases, etc); or it tracks the monthly RPI figure released every month,
so if inflation falls, so does my return on the savings, immediately. As
RPI is normally a leading indicator which changes quicker than interest
rates offered by the banks do, then I'm left wondering if this is a worthy
investment, especially with the emphasis now on reducing inflation/RPI.
 
Ad

Advertisements

T

Terry Harper

Just so I get my head around this....here's a link to the NS&I website so
you know where I'm getting the rates from:

http://www.nsandi.com/products/ilsc/rates.jsp

So, after reading the bumph on the website......If I invest £1,000 (say) for
three years, I will get RPI plus 1.3% on top of that, so say RPI is 4%pa
plus 1.3%, my actual return is 5.3% (tax free).

What's not clear is whether the RPI is set for a year based on a particular
month in the year (similar to how the government sets pension/wage
increases, etc); or it tracks the monthly RPI figure released every month,
so if inflation falls, so does my return on the savings, immediately. As
RPI is normally a leading indicator which changes quicker than interest
rates offered by the banks do, then I'm left wondering if this is a worthy
investment, especially with the emphasis now on reducing inflation/RPI.
It looks perfectly obvious to me.

They give the annual valuations, e.g.:

3-year 15th Issue
purchase price + Index-linking for year 1 + 1.1% of purchase price =
1st anniversary value
1st anniversary value + Index-linking for year 2 + 1.3% of 1st
anniversary value = 2nd anniversary value
2nd anniversary value + Index-linking for year 3 + 1.66% of 2nd
anniversary value = maturity value

That's considerably different in concept from what you are suggesting.
The year runs from the date of purchase.
 
H

Hungerdunger

Tom Bradbury said:
Just so I get my head around this....here's a link to the NS&I website so
you know where I'm getting the rates from:

http://www.nsandi.com/products/ilsc/rates.jsp

So, after reading the bumph on the website......If I invest £1,000 (say)
for three years, I will get RPI plus 1.3% on top of that, so say RPI is
4%pa plus 1.3%, my actual return is 5.3% (tax free).

What's not clear is whether the RPI is set for a year based on a
particular month in the year (similar to how the government sets
pension/wage increases, etc); or it tracks the monthly RPI figure released
every month, so if inflation falls, so does my return on the savings,
immediately. As RPI is normally a leading indicator which changes quicker
than interest rates offered by the banks do, then I'm left wondering if
this is a worthy investment, especially with the emphasis now on reducing
inflation/RPI.
Does this extract from the T&C help? :

15. An index-linked valuation under these terms and conditions will be
related to the movement of the UK General Index of Retail Prices maintained
by the Office for National Statistics, or any Index replacing that Index.
This movement is indicated by the Index figure issued monthly and
subsequently published in the London, Edinburgh and Belfast Gazettes. For
the purposes of these terms and conditions, the Index figure applicable to
any calendar month will be the Index figure issued in the immediately
preceding calendar month.
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.
 
A

Allan Gould

Tom said:
Just so I get my head around this....here's a link to the NS&I website so
you know where I'm getting the rates from:

http://www.nsandi.com/products/ilsc/rates.jsp

So, after reading the bumph on the website......If I invest £1,000 (say) for
three years, I will get RPI plus 1.3% on top of that, so say RPI is 4%pa
plus 1.3%, my actual return is 5.3% (tax free).

What's not clear is whether the RPI is set for a year based on a particular
month in the year (similar to how the government sets pension/wage
increases, etc); oer it tracks the monthly RPI figure relased every month,
so if inflation falls, so does my return on the savings, immediately. As
RPI is normally a leading indicator which changes quicker than interest
rates offered by the banks do, then I'm left wondering if this is a worthy
investment, especially with the emphasis now on reducing inflation/RPI.
AIUI, you get interest on the sum invested, then index-linking on the
result. I can generally get pretty close to the maturity values that
NS&I come up with, but never exactly.
NS&I use the RPI on a monthly basis, but it's usually lagged by two or
three months, ie if you have a certificate that matures today (2 Aug),
the RPI for August won't be published until about 18 Sept, so they lag
it. Index-linked savings certificates may not by unattractive for
higher-rate tax-payers.

HTH
IANAL, IANAA, but I do have some Savings Certificates.

Allan
 
W

whitely525

Just so I get my head around this....here's a link to the NS&I website so
you know where I'm getting the rates from:

http://www.nsandi.com/products/ilsc/rates.jsp

So, after reading the bumph on the website......If I invest £1,000 (say) for
three years, I will get RPI plus 1.3% on top of that, so say RPI is 4%pa
plus 1.3%, my actual return is 5.3% (tax free).

What's not clear is whether the RPI is set for a year based on a particular
month in the year (similar to how the government sets pension/wage
increases, etc); or it tracks the monthly RPI figure released every month,
so if inflation falls, so does my return on the savings, immediately. As
RPI is normally a leading indicator which changes quicker than interest
rates offered by the banks do, then I'm left wondering if this is a worthy
investment, especially with the emphasis now on reducing inflation/RPI.
It is tax free and guaranteed to beat inflation. So yes if you are HR
taxpayer (for next 3yrs) and don't mind locking your money away.

Of course as interest rates climb and begin to bite on inflation they
become less attractive.
 
Ad

Advertisements

R

RobertL

It is tax free and guaranteed to beat inflation. So yes if you are HR
taxpayer (for next 3yrs) and don't mind locking your money away.

It's not locked away. You can cash them in early if you want but you
don't get the full increments unless you hold them for the full term.

Robert
 

Ask a Question

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments. After that, you can post your question and our members will help you out.

Ask a Question

Top