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NS&I 5-year index linked certificate -- maturity options?

TedSwippet
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NS&I 5-year index linked certificate -- maturity options?

#191146

Postby TedSwippet » January 4th, 2019, 9:54 pm

This may be a bit of a long-shot, but has anyone recently had an NS&I 5-year Index Linked saving certificate mature? If so, what maturity options were you given?

I have a 3-year one maturing later this month, and a 5-year one maturing somewhat after the RPI to CPI change (grrr) on May 1. My plan is to renew the 3-year one for 5 years to capture two more years of RPI rather than CPI, and renew the 5-year one for 3 years so as to effectively swap them around. I can definitely roll the 3-year into a 5-year one, but can I definitely also roll the 5-year into a 3-year one?

NS&I themselves were a touch vague on this point when asked. They did say that the rules can change -- indeed, and they do, regularly (and more often than not to the government's benefit and the investor's detriment) -- but didn't seem particularly sure about what they are even now. Probably something to do with the fact that Index Linked certificates haven't been sold by NS&I for close to a decade.

Anyway, I'm looking for some firsthand and, hopefully, also relatively recent experience. Thanks.
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Dod101
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Re: NS&I 5-year index linked certificate -- maturity options?

#191155

Postby Dod101 » January 4th, 2019, 11:27 pm

By coincidence I had notice today about one of my index linked certificates maturing shortly. You will get full details about what you can and cannot do about a month before maturity and that will give you the options. If you do nothing it will be extended for another term of the same length as the maturing certificate. I thought I read somewhere that they would not allow you to convert a maturing three year certificate to a five year one but there does not seem to be anything about that. All my certs are now I think three years and I just let them roll on by doing nothing. The interest rate is the same irrespective of the term, index linking to RPI plus 0.01%, tax free of course, for the time being anyway.

You can certainly at the moment convert a five year certificate to a three year one. I break mine up sometimes to two years and three years if an individual one is maturing and I think it is getting too big. Leaving them to compound is a good way to preserve their purchasing power.

They change their terms from time to time which is why they will not commit to terms at this stage for you.

Dod

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Re: NS&I 5-year index linked certificate -- maturity options?

#191324

Postby TedSwippet » January 5th, 2019, 6:37 pm

Dod101 wrote:You can certainly at the moment convert a five year certificate to a three year one. I break mine up sometimes ...

Sounds good. Thanks for the confirmation.

The current rules show 2-, 3- and 5-year certificates available, but 2-year is only usable if you roll an existing 2-year one, so there's a sort-of implication here that shortening the term may be less predictably available (when needed) than lengthening it.

For assorted reasons I hold a mix of 3-year and 5-year certificates, and actually have two that will mature before May 1, so I'll roll those to 5-year for maximum RPI capture. Going forward, I think I will probably stick to just 3-years all round -- if there's nothing to be gained from tying everything up for 5 years I might as well have the added flexibility from the shorter term (the worry, of course, being that in the meantime they are scrapped entirely, with the result that I'll forgo 2 years of index linking that I could otherwise have captured). And if it turns out when the time comes that 5-year to 3-year roll isn't available for some reason, it's not a disaster either. I don't have immediate plans for the cash, so as long as a roll to another 5-year is available I'll probably take it, even though at CPI (grrr).

These were a great product, and it's a pity that they are no longer on sale and haven't been for so long. Just another sign of the times, I guess. It seems like over the past decade no opportunity to squeeze savers has been missed.

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Re: NS&I 5-year index linked certificate -- maturity options?

#191344

Postby Dod101 » January 5th, 2019, 8:11 pm

Yes I have quite a few and vary the dates of maturity by playing around with the lengths of the individual certificates. The rules do keep changing though so you may not be able to do just what you want. I have held mine for at least 20 years and like you have mostly three year ones in the so far unsuccessful hope that interest rates may rise. instead they have fallen to just .01% above RPI. They are a good product though and like land, they are not, at this time anyway, making any more.

Dod

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Re: NS&I 5-year index linked certificate -- maturity options?

#191349

Postby Spet0789 » January 5th, 2019, 8:27 pm

TedSwippet wrote:These were a great product, and it's a pity that they are no longer on sale and haven't been for so long. Just another sign of the times, I guess. It seems like over the past decade no opportunity to squeeze savers has been missed.


You could just content yourself with thanking the taxpayers for subsidising your income.

Beyond pandering to the (wealthy) retiree vote, I don’t understand why NS&I / the government allows continued reinvestment into a product which is so attractively priced it has to be closed to new investment.

NS&I should either re-open index linked certs properly at a sustainable rate (RPI minus 0.5% or whatever) or close them altogether.

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Re: NS&I 5-year index linked certificate -- maturity options?

#191422

Postby TedSwippet » January 6th, 2019, 9:14 am

Spet0789 wrote:You could just content yourself with thanking the taxpayers for subsidising your income.

These are a small part of my investments. On balance, taxpayers should be thanking me for the huge subsidy I provide to them out of my other income.

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Re: NS&I 5-year index linked certificate -- maturity options?

#191427

Postby Spet0789 » January 6th, 2019, 9:33 am

Unfortunately those of us who shoulder the tax burden rarely get any thanks!

Maybe if you’ve paid say £5 million in lifetime taxes you get an automatic MBE to reflect your contribution to society?

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Re: NS&I 5-year index linked certificate -- maturity options?

#191620

Postby toofast2live » January 7th, 2019, 9:01 am

The latest OBE was given to some rattle snake who managed to convince the NHS to overpay for his out of date drugs. Hope it catches a non trivial illness and meets my doctor...

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Re: NS&I 5-year index linked certificate -- maturity options?

#191705

Postby mutantpoodle » January 7th, 2019, 2:39 pm

YES

you can renew/rollover a 3 year bond on maturity into a five year!

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Re: NS&I 5-year index linked certificate -- maturity options?

#191723

Postby Jabd2001 » January 7th, 2019, 4:08 pm

Wasn’t the question about the opposite though - can you rollover a 5 year to a 3 year?

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Re: NS&I 5-year index linked certificate -- maturity options?

#191733

Postby mutantpoodle » January 7th, 2019, 4:48 pm

yes..apologies

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Re: NS&I 5-year index linked certificate -- maturity options?

#191895

Postby yorkshirelad1 » January 8th, 2019, 10:15 am

Jabd2001 wrote:Wasn’t the question about the opposite though - can you rollover a 5 year to a 3 year?


Just had a 5-year IL certificate mature today and checked the letter I received a couple of weeks ago:

Option 1: renew for another 5-year term
Option 2: renew for a term of a different length: you may choose to keep your money in Index-Linked Savings Certificates but invest for a different length of term.
Option 3: cash it in

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Re: NS&I 5-year index linked certificate -- maturity options?

#191993

Postby Bouleversee » January 8th, 2019, 5:18 pm

I have a 3 year one maturing on 5 February and am toying with the idea of making it 5 years. I gather the rpi rate for December, which is the one which will be applied to my certificate for the past year, will not be announced till 16 January but looking at the ons website it would appear that the rpi rate applied in November was only 2.2% whereas it was 4.11% for the previous year. I find this difficult to understand since everything I have to pay for - utilities, petrol, food and cleaning products etc, all the stuff one buys from supermarkets and chemists, insurance, water and service charges - has rocketed in price and labour costs have also gone up hugely in the past year, more so than the previous year it seems to me . I haven't bought any clothes other than undies and a cheap jumper since I prefer what I already have to anything currently in the shops but the prices of garments shown in the press and my one local shop seem to be extortionate now.

I was vaguely aware that NS&I were planning to switch to CPI at some point but I can't see any reference to this in the literature supplied to me, which seems odd. Do I gather that this is likely to make the return even lower and is it known for certain that they won't apply CPI to certs. renewed in the immediate future? Bearing in mind that interest rates may rise during the next 5 years, I am wondering whether it is really worth tying up over £2 for 5 rather than 3 years, although I suppose much depends what CPI covers and how much the price of those goods will be affected by Brexit. What is the essential difference between the 2 indices?

Am I right in thinking that although no tax is payable when cashed in, the certificates do form part of one's estate and so are potentially liable to IHT?
Even so and even with a lower return, they will have beaten my stock market returns this year so I suppose they are worth hanging on to and will provide some cash to pay towards IHT when I pop my clogs.

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Re: NS&I 5-year index linked certificate -- maturity options?

#192006

Postby Bouleversee » January 8th, 2019, 7:02 pm

Here is Merryn Somerset Webb's explanation of the difference between RPI and CPI:

https://moneyweek.com/merryns-blog/the- ... ers-55018/

All clear now? So if RPI is around 2.2% now and CPI is about 1% less than that, we wouldn't be getting much if we got stuck with the latter.
Anyone know if house prices are included in either?

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Re: NS&I 5-year index linked certificate -- maturity options?

#192025

Postby TedSwippet » January 8th, 2019, 8:56 pm

Bouleversee wrote:I was vaguely aware that NS&I were planning to switch to CPI at some point but I can't see any reference to this in the literature supplied to me, which seems odd. Do I gather that this is likely to make the return even lower and is it known for certain that they won't apply CPI to certs. renewed in the immediate future?

Details are in the FAQs part of this: https://www.nsandi.com/index-linked-sav ... rtificates . Some excerpts:
What's changing?
We’re changing the way we calculate index-linking on our Index-linked Savings Certificates, in line with the government’s switch to use the Consumer Prices Index (CPI) as the standard measure for UK inflation. We’re making the change to save money for taxpayers.

If you have any Index-linked Savings Certificates, the change will only affect you when each Certificate reaches the end of its investment term on or after 1 May 2019. If after this date you choose to renew your Certificate for a further investment term, we will then calculate the index-linking using the CPI instead of the RPI. You will still benefit from tax-free, inflation-beating savings – we will just be using a different index.
...
Will this affect my existing Certificates?
No, it won’t affect any existing Certificates you have until the end of the investment term. However, if you decide to renew any Certificates that mature on or after 1 May 2019, your index-linking will then be calculated using CPI not RPI.
...
If I renew at maturity will it be on the RPI or CPI?
If you decide to renew your Certificate on or after 1 May 2019, we will calculate your index-linking using the Consumer Prices Index (CPI) instead of the Retail Prices Index. The CPI is generally lower than the RPI, so this means you will probably receive a lower return.

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Re: NS&I 5-year index linked certificate -- maturity options?

#192065

Postby Bouleversee » January 8th, 2019, 11:42 pm

Many thanks, TS. So my other bonds will be subject to CPI. Am still dithering about whether to let this one renew for 3 yrs or 5 but will have to make my mind up before 1 Feb. The early withdrawal penalty after the lst year doesn't amount to much if one does it at the beginning of a year so maybe worth going for 5 years.

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Re: NS&I 5-year index linked certificate -- maturity options?

#192131

Postby stevensfo » January 9th, 2019, 10:29 am

Bouleversee wrote:Many thanks, TS. So my other bonds will be subject to CPI. Am still dithering about whether to let this one renew for 3 yrs or 5 but will have to make my mind up before 1 Feb. The early withdrawal penalty after the lst year doesn't amount to much if one does it at the beginning of a year so maybe worth going for 5 years.


I still have a few years to run but will have to think long and hard about whether it's worth continuing. If inflation looks like increasing, then I'll probably renew. I agree totally with your previous comments about CPI. Even over 5 years, the difference is quite scary. I always use RPI as a benchmark and will continue to do so. I believe that the CPI calculations include something called 'Hedonic regression analysis' which, as far I can see from a quick internet search, is more a measure of how people's spending habits affect their perceived rate of inflation than a true measure of inflation itself.

Steve

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Re: NS&I 5-year index linked certificate -- maturity options?

#192133

Postby Dod101 » January 9th, 2019, 10:46 am

From all of that it seems that for anyone (like me) we should be trying to extend certificates maturing before 1 May 2019 to the maximum period of five years, thus capturing the RPI measure rather than the lower CPI for as long a period as possible.

The next question is what return might be available outside of N S & I. I do not know and am reluctant to move from N S & I because to me even the CPI is well worth having as it will reflect inflation in a similar way to RPI, just at a slightly lower rate. Anyway, the funds are simply a cash backstop which I will only ever use for a major and unforeseen capital item. I simply roll the interest into the capital and reinvest. Furthermore, unlike a bank deposit, even if the latter was giving a better rate, N S & I interest is tax free.

I do not see these certificates as a savings vehicle as much as simply a value protected back stop.

Dod

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Re: NS&I 5-year index linked certificate -- maturity options?

#192139

Postby yorkshirelad1 » January 9th, 2019, 11:03 am

Bouleversee wrote:I have a 3 year one maturing on 5 February and am toying with the idea of making it 5 years. I gather the rpi rate for December, which is the one which will be applied to my certificate for the past year, will not be announced till 16 January but looking at the ons website it would appear that the rpi rate applied in November was only 2.2% whereas it was 4.11% for the previous year. I find this difficult to understand since everything I have to pay for - utilities, petrol, food and cleaning products etc, all the stuff one buys from supermarkets and chemists, insurance, water and service charges - has rocketed in price and labour costs have also gone up hugely in the past year, more so than the previous year it seems to me . I haven't bought any clothes other than undies and a cheap jumper since I prefer what I already have to anything currently in the shops but the prices of garments shown in the press and my one local shop seem to be extortionate now.

I was vaguely aware that NS&I were planning to switch to CPI at some point but I can't see any reference to this in the literature supplied to me, which seems odd. Do I gather that this is likely to make the return even lower and is it known for certain that they won't apply CPI to certs. renewed in the immediate future? Bearing in mind that interest rates may rise during the next 5 years, I am wondering whether it is really worth tying up over £2 for 5 rather than 3 years, although I suppose much depends what CPI covers and how much the price of those goods will be affected by Brexit. What is the essential difference between the 2 indices?

Am I right in thinking that although no tax is payable when cashed in, the certificates do form part of one's estate and so are potentially liable to IHT?
Even so and even with a lower return, they will have beaten my stock market returns this year so I suppose they are worth hanging on to and will provide some cash to pay towards IHT when I pop my clogs.


  • NS&I lag their RPI figures by 2 months i.e. if you have a certificate maturing this month (Jan), they will use the published RPI for Nov.
  • RPI is generally higher than CPI. So if you have a 2- or 3-year certificate maturing before May 2019 (which is the date of the change from RPI to CPI), you might want to roll it over into 5 years (if you can manage that time frame)
  • The NS&I decision to move from RPI to CPI did get some coverage in the press and got mentioned on LF, but I haven't seen it mentioned in anything I've had from NS&I recently (and I've had a couple of certificates roll over last month); NS&I don't appear to have done a mailshot (which would be expensive) or add an insert in to existing mailshots (which IMHO would be A Good Idea, esp considering this must be a change to their T&Cs which you'd hope they would notify their account holders of....)
  • There is normally no tax on savings certificates for an individual (trusts will pay tax on them if held in a trust), either income or CGT during their existence or on maturity. Savings certificates DO form part of an estate (so will fall under IHT if IHT is due). A couple of useful things:

    1. savings certificates can be passed on intact to beneficiaries: they don't have to be cashed out if you don't need/want to on death of the holder but can be bequeathed. Given that new savings certificates are not available for purchase, they are only available for rolling over for matured certificates, a spouse/niece/nephew/offspring might like them with the associated benefits);

      1. as an aside, it can be quite tricky to pass on savings certificates if more than one beneficiary (i.e. trying to split between two beneficiaries and treat them equally) as it's no longer possible to divide a savings certicate into two (e.g. if two beneficiaries to treat beneficiaries equally) or to consolidate e.g. 5 of the deceased's existing savings certificates into two (if two beneficiaries). I'm struggling with this at the mo (there are about 21 of deceased's savings certificates of 2-, 3- and 5-year terms on different rates and two beneficiaries) and NS&I don't seem to be able to cater for this.
    2. funds held with NS&I can be used to pay IHT (if due) paid direct to HMRC before probate (but I am told NS&I are not quick when doing this - which may hold up the payment of IHT and therefore grant of probate - and now with the Direct Payment Scheme of banks being able to pay IHT due direct to HMRC before getting probate when bank accounts are often frozen before getting probate, the DPS would be a better/quicker way of doing that than NS&I)

HTH
IANA lawyer or accountant or IFA!

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Re: NS&I 5-year index linked certificate -- maturity options?

#192142

Postby yorkshirelad1 » January 9th, 2019, 11:10 am

Dod101 wrote:From all of that it seems that for anyone (like me) we should be trying to extend certificates maturing before 1 May 2019 to the maximum period of five years, thus capturing the RPI measure rather than the lower CPI for as long a period as possible.

The next question is what return might be available outside of N S & I. I do not know and am reluctant to move from N S & I because to me even the CPI is well worth having as it will reflect inflation in a similar way to RPI, just at a slightly lower rate. Anyway, the funds are simply a cash backstop which I will only ever use for a major and unforeseen capital item. I simply roll the interest into the capital and reinvest. Furthermore, unlike a bank deposit, even if the latter was giving a better rate, N S & I interest is tax free.

I do not see these certificates as a savings vehicle as much as simply a value protected back stop.

Dod


Something else to throw into the pot is that savings certificates are covered by the government against loss, so that's extra to the £85k (or whatever it is at the moment) of the FSCS if your bank/building society goes under i.e. if you have more than £85k in cash savings per institution, and/or you have a large sum (more than £85k), put/keep some in NS&I (I think the limit at NS&I is a lot higher too).


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