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ns&i index linked bond.
nodrog60
Posted: 27 March 2012 09:32:46(UTC)
#1

Joined: 27/03/2012(UTC)
Posts: 3

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hello, i think i [as well as a lot of other people] have been misled about how the interest is calculated on the ns&i index linked bond. last may i saw this bond and noticed that inflation at the time calculated from the[r.p index] was running at 5%, and so i rang up the ns&i sight to get more imformation. Over the phone i was led to believe that this would at least be amount of interest i would receive, i even asked, if the inflation rate dropped below that in the first year would that then mean i would only receive the bonus, and i was assured that that wasnt the case.Just recently i noticed the inflation rate drop to about 3.8% so i thought that i would cash it in on the first aniversary in May 2012. Today i rang up ns&i and was told to my shock that if the interest is below what it was when i first opened the bond then thats all that i would receive [the bonus 1 year =025%]. I am feeling very angry about this, and have lodged an official complaint , due to misleading imformation i received over the phone,i have asked them to find the telephone conversation i had with the adviser before opening the bond. Has anyone else had the misfortune to find themselves in this situation with this product, after reading a couple of posts on this site i suspect that this is the case. I put £15000 into this bond and had roughly calculated making about £750 interest for the year , now it looks like all ill receive is about £35. This is very difficult accept that kind of loss. Has anyone else had this problem, i would be gratefull for any replies. thanks
barry watson
Posted: 27 March 2012 12:18:48(UTC)
#2

Joined: 15/07/2006(UTC)
Posts: 2

is this the 3 or 5 year index linked certificates or something else
DJT154
Posted: 27 March 2012 12:23:32(UTC)
#3

Joined: 26/03/2012(UTC)
Posts: 1

Thansk for this . I also put £15,000 into this and presumed that i would get 3.8% or better . I will go away and check the small print as i know i retained copies of everything they produced on their inflation bond .
In fact i complained recently that they did not allow us to invest even more and open it up again !! now i feel a mug !!
golfalot
Posted: 27 March 2012 12:24:17(UTC)
#4

Joined: 23/02/2011(UTC)
Posts: 10

Thanks: 2 times
I have this bond and it was quite clear that you only get the index linking if it is held for the full term. I don't know what you were told over the phone, but it is hard to believe that you will get anywhere without written evidence.
Graeme Thomson
Posted: 27 March 2012 12:24:21(UTC)
#5

Joined: 27/03/2012(UTC)
Posts: 2

well you are wrong, both in assuming that the indexing was guaranteed as a minimum of 5%pa and also in your computation of what you will get. READ THE DOCUMENTS. The certificate of investment and notes are VERY clear.

it increases with the RPI to the anniversary date ie end of each year. SO if RPI increase in year 1 is 3.8% you will get 15000* 3.8%= £570. No bonus as not held for long enough.

Old Skool
Posted: 27 March 2012 12:25:10(UTC)
#6

Joined: 18/08/2009(UTC)
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I think you need to read the terms and conditions carefully for this kind of product.

1. The interest rate and inflation linking are often tiered, so you need to hold to maturity to get the headline rates.

2. The return is made up of several components. The actual interest rate spread and the inflation linking on both principal and interest, if you don't hold to maturity you will not get the full benefits of these elements, some of which are calculated and added at the end.

3. Inflation rises and falls over time. In effect you can track it with an index like the RPI (the retail prices index). It is the gain in this index that they use to calculate the inflation uplift on your capital.

I personally don't think they are a bad product, but they are not as straightforward as a depost account.
Geoff Watson
Posted: 27 March 2012 12:27:04(UTC)
#7

Joined: 19/12/2011(UTC)
Posts: 1

My understanding on the five year bond, was that interest was calculated at RPI (3.7%) at March each year, plus a 0.5% bonus, which would equate to 4.2% for 2012.....

Any thoughts would be welcome by you experts out there.....
Graeme Thomson
Posted: 27 March 2012 12:29:37(UTC)
#8

Joined: 27/03/2012(UTC)
Posts: 2

Geoff, the bonus of 0.5% is only if you hold the bond for 5 years
Chris Harris
Posted: 27 March 2012 12:43:18(UTC)
#9

Joined: 13/11/2007(UTC)
Posts: 3

Thanks: 1 times

As the previous posts say you appear to be wrong in your calculations and assumptions.

Go to http://www.nsandi.com/sa...gs-certificates?tabid=c

where you will find a calculator that, as far as I am concerned, produces the result I anticipated.

Regrettably it is purchasers of financial products like yourself, that do not seem to be able read and digest information about relativity simple products accurately, that result in the immense bureaucracy the accompanies even the simplest investment.

Any way the good news is it looks like you have more interest than you recently thought.
Paul Lewis
Posted: 27 March 2012 13:00:03(UTC)
#10

Joined: 27/03/2012(UTC)
Posts: 1

The call centre has got it wrong this is not how they work. May 2011 certificates will be uprated with the March index published in April. If that is 3% the you will get £103 for every £100. NB the ones that were issued last May should NOT be cashed in until 1 year has passed - if you do they you get just your capital back with no growth.
Altogether now
Posted: 27 March 2012 13:03:54(UTC)
#11

Joined: 11/08/2010(UTC)
Posts: 18

The calculation for the index linked bonds is based on the change in the Retail Prices INDEX each year NOT the RPI percentage that is quoted each month. So you take the INDEX at the end of the year, subtract the INDEX at the start of the year and express that as a percentage. That is the percentage rate of interest that you will receive. You will also receive part of the bonus after the first year (not the full 0.5% or 1%, depending on the certificate).
It's all in the documentation on the site, all be it that you need to dig a little.
driver
Posted: 27 March 2012 13:05:47(UTC)
#12

Joined: 12/01/2007(UTC)
Posts: 2

No. My understanding is:-

The interest paid each year is the RPI increase (inflation) measured at the end of each anniversary/year (i.e. Y2 on Y1, Y3 on Y2 etc), whether a higher increase or a lower increase.

Even if there is a negative RPI (deflation) in a year, your savings will not be reduced.

There is also a bonus every year rising from 0.25% for Year 1 through 0.35% for Year 2 towards 0.68% in Year 5 (averaging 0.5% if you hold for full 5 years).

You can exit with your gains any time after Year 1. Useful if you think RPI is going to slow too much.
ND
Posted: 27 March 2012 13:10:14(UTC)
#13

Joined: 22/12/2011(UTC)
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nodrog60,

You have made a very common mistake in understanding what "RPI" means and it sounds like the folks at NS&I you talked to didn't explain things very well either, but it's nowhere near as dire as you believe. Read on and I'll explain...

RPI is actually not a percentage, the percentage is RPI inflation, i.e. the change in RPI, which is the Retail Prices Index. It's understandable that you've misunderstood this as just about everyone uses the two interchangeably, even the ONS themselves!

The Retail Prices Index reflects how much it costs to buy a basket of goods, and was set at 100 in January 1987. Now, the most recent figure is for February 2012, and the Retail Prices Index figures for that and the previous two Februarys are:

Feb 2010 219.2
Feb 2011 231.3
Feb 2012 239.9

So, a basket of goods that cost you £100 in January 1987 would have cost you £219.20 in Feb 2010, £231.30 in Feb 2011, and £239.90 in Feb this year.

That's the Retail Prices Index. RPI inflation, i.e. the change in the RPI, across those Februarys was:

Feb 2010 - Feb 2011 : (231.3 / 219.2) - 1 = 5.5%
Feb 2011 - Feb 2012 : (239.9 / 231.3) - 1 = 3.7%

Now, the common mistake you are making is in thinking that where the NS&I T&Cs say that in the event of a decrease in the RPI level you will only get the 0.25%, you are thinking that refers to the RPI inflation % figure, and seeing that the % rate of inflation has decreased you (wrongly) believe you'll only get the 0.25%.

However, where the NS&I T&Cs talk of "the RPI level" they are referring to the Retail Prices Index -- the 231.3, 239.9, etc -- not the %. The %age dropping just means that the rate of inflation has slowed, but prices -- and the index -- are still going up and you'll get a return from the bond commensurate with that.

HTH
2 users thanked ND for this post.
nodrog60 on 27/03/2012(UTC), Carole Rogers on 27/03/2012(UTC)
Mark22
Posted: 27 March 2012 13:12:19(UTC)
#14

Joined: 01/01/2010(UTC)
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I also think that one thing to consider is that you should never believe what you think you've heard on the phone. One's mind warps answers to what one expects (sorry for sounding RP but its not a personal statement) and the same from the person telling one what is going on. They may have misinterpreted the question and therefore given the wrong answer. Always read the fine print.

The five year index linked savings certificates (48th issue) give a tiered bonus (0.25% year 1 to 0.86% year 5 which comes out at 0.5% if you hold it for the 5 years
StanInCyprus
Posted: 27 March 2012 13:22:30(UTC)
#15

Joined: 07/09/2010(UTC)
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I wonder why people do not READ what the NS&I documentation explains. It was very clear
Ian Grumpy
Posted: 27 March 2012 13:34:14(UTC)
#16

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If I've got this right, you thought that when inflation (ie the difference in prices between when you bought and a year earlier) was running at 5%, NS&I would pay you 5% plus the annual bonus? Even if the rate of inflation fell?

Didn't that seem just a little bit too good to be true?
Tortoise1000
Posted: 27 March 2012 14:28:52(UTC)
#17

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Wow, you are confusing the the words index, inflation and interest. Lets go through it with some simple figures for the index, to illustrate. (I will ignore the little bit of fixed interest 0.5% or whatever, - you will get the first tier of that anyway, as well as the index linked interest)

May 2010 Index 100

March 2011 Index 103

May 2011 Index is 105. So annual inflation is 5%
last may i saw this bond and noticed that inflation at the time calculated from the[r.p index] was running at 5%, Correct .
Over the phone i was led to believe that this would at least be amount of interest i would receive Well, if they said that, that was wrong.
i even asked, if the inflation rate dropped below that in the first year would that then mean i would only receive the bonus, and i was assured that that wasnt the case. They were correct in that statement. You would receive whatever the inflation rate was at the end of the year, even if it was lower than 5%

March 2012 Index 106.8. So annual inflation is 3.8%
Just recently i noticed the inflation rate drop to about 3.8% Yes.

Today i rang up ns&i and was told to my shock that if the interest is below what it was when i first opened the bond then thats all that i would receive [the bonus 1 year =025%]. You are not being clear in this sentence. Do you mean interest , or index? Here are some possibilities for

May 2012

1.Index 105 or less. Annual inflation zero or negative. You will get no interest

2. Index 108.8 Annual inflation 3.8%, you will get 3.8% interest

3. Index 110. Annual inflation 5%, you will get 5% interest

The point is, whatever the index is, you will get enough interest to make your money worth what it was in May 2011. If there has been no inflation you will get no interest. But you wont need it, your money is still worth what it was. These certificates are really designed to preserve the value of your capital , that's all

If they told you would get 5%, that was wrong.

T


Blobby
Posted: 27 March 2012 14:57:17(UTC)
#19

Joined: 28/10/2008(UTC)
Posts: 2

Wait until your 1 yr anniversary, contact NS&I and ask for a statement. Then decide if you wish to stay with it or bale out with at least your initial deposit intact.
ND
Posted: 27 March 2012 14:58:13(UTC)
#18

Joined: 22/12/2011(UTC)
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Tortoise1000;14442 wrote:
2. Index 108.8 Annual inflation 3.8%, you will get 3.8% interest

3. Index 110. Annual inflation 5%, you will get 5% interest

No it isn't and no you won't. This is another common mistake people make, subtracting things when they should be dividing. The example should read:

2. Index 108.8 Annual inflation 3.62% (108.8/105), you will get 3.62% interest

3. Index 110. Annual inflation 4.76% (110/105), you will get 4.76% interest
Tortoise1000
Posted: 27 March 2012 15:01:40(UTC)
#20

Joined: 03/10/2009(UTC)
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I dont think anyone need feel a mug for buying index linked certificates. Building sociery interest rates have been poor lately. Matching inflation after tax is pretty good at present. And looking to the future, they are always a good way of protecting capital over 5 years. That is too short for equities and too long to predict what inflation will do. So they are a safe bet for money the value of which you want to preserve.

T
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