Inflation figures

[DimPrawn]

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.


If you can't understand that this does not apply monthly figures, only the spot figure at the anniversary dates, I hope you don't work in finance.

If you buy and inflation is 1% it goes up to 10000000% in the middle of the year and goes back down to 1%, you get 1% for the year.

[rootsnall]

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.


If you can't understand that this does not apply monthly figures, only the spot figure at the anniversary dates, I hope you don't work in finance.

If you buy and inflation is 1% it goes up to 10000000% in the middle of the year and goes back down to 1%, you get 1% for the year.

What you said above is correct, but isn't what you said earlier.

[AtW]

I'm with lje. ( will he admit he is wrong !?! )

In nearly 10 years the only time I saw DimPrawn admit he was wrong when he used wrong login to post his tulip.

[TimberWolf]

I imagine they calculate it that way to rip off investors? Anyway 1%/year return for a lump sum tied up for a fixed term doesn't seem like very good return, as it also requires some faith that Sterling won't drop 1% in a whole year, which it is currently doing almost daily.

Edit: oh yeah I forgot to mention, you also have to believe the official inflation rate

[lje]

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.


If you can't understand that this does not apply monthly figures, only the spot figure at the anniversary dates, I hope you don't work in finance.

If you buy and inflation is 1% it goes up to 10000000% in the middle of the year and goes back down to 1%, you get 1% for the year.

That's true - as I said - people who opened a savings certificate a year ago will be getting 6.3% on their savings for the last year (5.3% + 1%). As I also said earlier - I understand that I won't get the 6.3% but I view it as indicative. By the way - I'm also hoping that VAT will go up so as to increase inflation and hence my income from the certificates.

The RPI figure used is the one prior to the month you bought it in and same figure is used for the whole year. So if you bought some time ago you will have a small RPI applied at the end of the year, not the big figures we are seeing now.

The above quote is completely wrong as your later post shows.

The RPI could go up to 1000% and you won't see more than the rate fixed at the start. Monthly figures are not used in between.

Also wrong. The rate is not fixed at the start. It's the difference between the rate at the start and the rate at the end which matters.

I hope you don't work in finance

Actually I do - and I'm very good at what I do.

You know, I always wonder with some posters whether the conversation would be quite so ascerbic if it was face to face. Perhaps it's because I'm a laydee that no-one is ever quite as rude to my face some people seem to feel is acceptable on a forum - or maybe it's a more general issue.

[lje]

I imagine they calculate it that way to rip off investors? Anyway 1%/year return for a lump sum tied up for a fixed term doesn't seem like very good return, as it also requires some faith that Sterling won't drop 1% in a whole year, which it is currently doing almost daily.

Edit: oh yeah I forgot to mention, you also have to believe the official inflation rate

Quite agree! But if you're going to be saving money anyway (rather than investing) what choice do you have? You could put the money in an ISA and get around 2.5%. At least this way if inflation keeps increasing so does your interest. As I said earlier if you had put some money into a savings certificate a year ago you would have got 6.3% tax free - not a bad rate currently.

So the question is whether you think that inflation will increase over the next 12 months. By the way, 1% is the minimum rate you will get as you get 1% on top of any RPI increase (and deflation is treated as a 0% RPI increase).

[TimberWolf]

Quite agree! But if you're going to be saving money anyway (rather than investing) what choice do you have? You could put the money in an ISA and get around 2.5%. At least this way if inflation keeps increasing so does your interest. As I said earlier if you had put some money into a savings certificate a year ago you would have got 6.3% tax free - not a bad rate currently.

So the question is whether you think that inflation will increase over the next 12 months. By the way, 1% is the minimum rate you will get as you get 1% on top of any RPI increase (and deflation is treated as a 0% RPI increase).

I prefer to think in real terms, but there is no such thing. The closest I get is gold and USD. Against those how has your investment faired? I don't know how ISAs work so I won't argue with your logic, but it does appear on the surface that you are ignoring inflation in your 6.3% tax free gains figure. It may well be that you've the safest investment going for what's to come, but it does look like a rip-off to me.

[lje]

I prefer to think in real terms, but there is no such thing. The closest I get is gold and USD. Against those how has your investment faired? I don't know how ISAs work so I won't argue with your logic, but it does appear on the surface that you are ignoring inflation in your 6.3% tax free gains figure. It may well be that you've the safest investment going for what's to come, but it does look like a rip-off to me.

The real rate of inflation is likely to be above the RPI . I'm not saying that savings certificates are making lots of money - I guess what I'm saying is that for that proportion of my money which is in savings accounts (rather than being invested in other things, such as foreign currency or gold) the savings certificates seem likely to bring a better return than other savings accounts. Given the low base rate and increasing inflation it seems likely to stay that way for a while too.

Also, although it is correct that the monthly figure is not used to calculate the interest it will still contribute as long as there isn't deflation. If the prices rise in April/May/June and then stay steady for the next 9 months the inflation rate at the end of the 12 months will still be positive. It's important to remember that the monthly figures are not unrelated to each other.

I don't believe it's a rip off. In fact (as long as there's no deflation) you are better off using the yearly figure than the monthly one as the full year's gains are applied on your savings for the whole year, rather than just the gains you got in the last month.

However, if we get deflation and an increase in base rates then you may well see me pulling my money out!

[TimberWolf]

...I don't believe it's a rip off. In fact (as long as there's no deflation) you are better off using the yearly figure than the monthly one as the full year's gains are applied on your savings for the whole year, rather than just the gains you got in the last month.

However, if we get deflation and an increase in base rates then you may well see me pulling my money out!

Sterling dropped 1% alone today against most currencies and inflation is likely a lot higher than the official rate. I don't see the attraction except that you aren't being über shafted like regular UK savers. Just shafted.

[lje]

Sterling dropped 1% alone today against most currencies and inflation is likely a lot higher than the official rate. I don't see the attraction except that you aren't being über shafted like regular UK savers. Just shafted.

It's all about having a balance. I like to have some of my money in savings as well as investments. Of the UK savings products available this one seems to be really good, but it needs to be part of a balanced approach which includes a number of investments too.