Index linked savings certificates

Latest RPI figures(1) show annual RPI at 3.2%. Yes, it varies, but I don't see any savings account(2) paying much more than 3.2%. So, it's

0.05%+RPI AND tax-free. Difficult to beat? Probably worth rolling over some of your savings into the reinvestment certificate.

(1): monthly figures [for Sept 2013 RPI] published this morning as it happens

(2): See e.g. The certificate that is maturing may have paid 1.35%+RPI, but the last time 1.35%+RPI was available was available was 42nd index-linked issue, available April 2007 to April 2008, when it dropped to 0.35%.

Bear in mind that savings certificates are not currently on sale, so you can't buy fresh, the only certificates available are those that are rolled over/reinvested.

It's debateable whether you'd buy new ones (if you could) at the currently available rates, but rolling over (at least a few of your spare pennies) would be worth considering.

Yes you are right I was looking at the original 2007 paperwork. We then reinvested in 2010.

I suppose nowadays beating inflation is the best one can do out with the stock market. Although interest rates must surely rise in the next three years. Derek.

I'm rolling over all my index linked certificates even though the interest rate on the bit of borrowing I do have is about 1% higher than the rate (inc inflation) that I'm getting on the certificates because there's no way to buy more when you have spare cash and there's no safer way to get an investment to beat inflation.

I've also got some fixed rate certificates - when I bought them I thought you could convert them to index linked when they mature but I believe that has now been taken away. So depending on the rate on offer and whether I have any remaining borrowing by the time they mature I'll toss up whether to reinvest them or not. But if it turns out I can turn them into index linked certs then I'll definitely do that.

If you have lots of borrowing at a rate above inflation and you do not expect to pay it all off for a long time then I'd probably say cash them in. Effectively, reduction in interest paid on the loan is also a tax free gain. But otherwise I'd say hang on to them - if it turns out you need the money in the future you can cash them in and otherwise you've got tax free index linked capital until you need it.

I skipped some issues completely because they came too close together and I didn't have the cash immediately available so I'd have had to borrow short term to buy them. I regret that decision now because later I was in the opposite position of surplus cash but no certs availble to buy.

Tim.

I have no borrowing. My thought often is as approaching 80 should I not just spend it now rather that in three years:-) Derek.

[snip]

Yes, that's my understanding too: you used to be able to re-invest maturing fixed rate certs into into index-linked certs. This was very handy, and thankfully I got most of mine done*. I believe the ability to do this was stopped when they changed a whole load of T&Cs a year or so ago (IRIC Sept 2012).

*: I also used to be able to amalgamate several maturing certificates into one cert (at a push). This was very useful as it cut down hugely on the paperwork and admin, and the number of small certs. However, I think the ability to do this has also gone (shame). You'd have thought that NS&I would appreciate the ability to do this (to reduce admin & paperwork etc), but they don't seem to be able to accommodate those sorts of ideas.

Ah! OK. Then my suggestion would be to spend it. Life is to be enjoyed, money is to be spent (eventually).

Tim.

A thing I often suggest to other oldies is to sell their houses and rent. Derek.

[snip]

Part of me says "spend it on yourself". Another part of me remembers that savings certificates don't necessarily have to be cashed in on death (I'm dealing with this for my mother's estate as the moment), and can be passed on to your heirs (should you so wish). Your beneficiaries might appreciate some tax-free savings (especially when savings certificates are not for sale at present, and haven't been for some time). That does of course depend on the situation/needs of estate and the Will, and the knowledge of the exors etc etc etc

Allan IANAL

I think that I will reinvest the certificates and my wife will do the same. We could then take money from the next cash ISA that matures as the reinvestment rate for that will be poor. Derek.

Another nice feature of Savings Certs (if you die) is that they can be used to pay the Inheritance Tax before probate has been granted. This breaks the usual impasse: no probate until tax paid, no accesss to the assets until probate.

Robert