NS&I Indexed-linked Savings Certificates

Okay, it's not a bond! However, I guess a lot of you have these in the safe part of your portfolio?

Anyway the question is, should I renew a five year bond that will mature next month?

The plus points are that's it underwritten by the government, tax free, hedges against inflation and is no
longer available.

Against this RPI this month is .6% and a pitiful additional .5% is added after maturity. So in short if the
RPI remains at this level for the next year, If I renew, for every £1000 invested I will receive just 1.1% or £11.00.

Of course this puts into context why some people may think that buying a junk bond for ten years at 4.4%,
or 6.5% for seven years is a good idea.

Will inflation finally rear it's ugly head; at least in my life time? The trouble is, if it does, further manipulation of how inflation is calculated may be used by central bankers to keep government borrowing artificially low.

So at the moment I plan to reduce my savings certificates and put the cash under the bed! In the meantime
I will research for a product that gives capital appreciation, not income, and that is moderately safe to enable me to live off my savings a little bit longer.

Comments

  • Hi - I cashed mine in at turn of the year and have moved to an offset mortgage - so now getting 2.8% tax free and have some protection if/when interest rates rise....
  • edited May 2015
    On a lighter note and thinking about it today, at 73, I would like Bond that guarantees I would live forever, but I can't find one!

    So I think I will start spending most of it!!

    www.terrymechan.com
  • My latest offer was index linking plus 0.05% so you must be getting favourable terms Thomas :-)
  • Good God CatoCR, yes your correct!!! Instead of my £11 on £1000 invested I will only get £6.50. Yes I may take Morgleman2's advice and spend it now. Good luck with your mortgage DavRos. Over and Out on this thread!!!!!!!!!!!!!
  • I have a similar dilemma as Thomas. We are always being reminded that " investments may go up or down " and that past performance is no guide to future returns . Also - that for equity investing - horizons should be long term ie 5- 10 years. Who knows what inflation will be then ? QE was thought to be inflationary ( almost as a no-brainer ) - well it has led to asset price inflation but more like deflation looking at RPI/CPI numbers. Thomas points out the advantages of holding ILSC's - and with Mark Carney's comments today I think I am going to hang on to mine - even though 2/3rds of my holdings are up for renewal in the next 12 months. Why - because they are irreplaceable ( in that you cannot buy them back if you change your mind ) they are very easy to administer,no tax to declare,no TER, - and very easy for any beneficiaries to manage in event of your death.

    I think Thomas you are correct - they are bonds - well they have quite a few of the characteristics of bonds but always with a " floor " price that will never go down ( ie the floor price can only increase ( or stay the same ))

    Should I be including my holdings of ILSC's in my asset allocation calculations ? I think I should. That would put my bond allocation up from 7% to nearly 25%
  • For what it is worth I intend to hold onto mine indefinitely. Another way to look at these is as an insurance policy. I'm not going to cancel my household insurance because it makes no return year after year - it is there in case something unexpected happens like my house burning down. If at some point in the future inflation takes off I will be glad to hold these.

    I class them more as cash rather than bonds as they have investor protection being government guaranteed and can't go down in value. As people have pointed out they are also giving very low cash like returns! If you want an alternative there are retail bonds with inflation protection from tesco, severn trent and national grid. These have a higher inflation adjusted return than national savings certificates although don't have the backing of the UK govt.
  • Still holding mine for same reasons as above ie
    1) They are irreplaceable
    2) They are insurance against inflation taking off
    3) They are government guaranteed

    JB
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