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Rolling over NS&I Index-linked Savings Certificates

Index-linked certificates from NS&I are precious assets for private investors to own.

I recently had some NS&I1 Index-linked Savings Certificates approach maturity, after five years fighting inflation in an obscure corner of my portfolio.

Truthfully there was never much doubt I’d reinvest them into new certificates (or “roll them over”, in the parlance).

But I always try to have fresh eyes, and so I did entertain the idea of cashing them.

Indeed the deal for renewing was superficially lousy.

Whether I chose the three or five-year fixed term, I was offered a tax-free return of: “Index-linking2 +0.01% per year”

A real3 return of 0.01% a year?

Pitiful – below what every major asset classes in the UK has achieved over the long-term on a historical basis and unlikely to excite a Warren Buffet wannabe.

Nevertheless I did roll over this tranche of certificates – and for five years, too.

Madness? Defeatist?

Here’s my thinking – and why if you can you should probably do the same.

Exotic investments for the everyday investor

An ex-girlfriend of mine used to rail against the millions spent on saving the panda from extinction. Such money would be better deployed, she said, conserving ecologically important beetles, sea slugs, and flatworms.

Pandas were needlessly exotic creatures with no useful role in today’s world.

And I have to admit, these Index-linked certificates can appear rather similar.

  • A 0.01% interest rate? (That sounds positively Kafka-esque!)

But in contrast to pandas, these certificates are much more attractive than they first appear.

For one thing – like pandas in my ex’s utopia – they’re not making them any more.

If you’ve got Index-linked certificates and they mature, then so far you’ve always been able to roll them over into new certificates.

But if you haven’t, then you can’t get them. NS&I has none for sale.

In fact, it last offered certificates for new investment (as I flagged) back in 2011.

So already here’s a couple of things to think about.

Firstly, their lack of availability might imply the certificates are so attractive that NS&I has had to withdraw them from sale.

NS&I is the UK government’s state-owned bank. It walks the line between raising money to fund government borrowing whilst trying not to distort or overly out-compete the commercial market. And that is hard, especially given that no commercial bank can raise taxes or print money to meet its obligations.

The suspicion must be that demand for new Index-linked certificates in our risk-adverse and low-yielding times would be so great that it would overwhelm NS&I’s targets – even with that puny 0.01% interest rate.

This alone should give you pause before cashing them in.

But there’s a second and related factor.

The absence of new issues makes the certificates “use them or lose them” investments. You don’t have the flexibility to cash them in and put the money into the stock market, say, and then change your mind in a year and move back into new Index-linked certificates.

Like death or pursuing a career as a eunuch, cutting loose your certificates is a one-way operation.

And that’s a big decision to take.

The manifold attractions of NS&I Index-linked certificates

Of course, there are many assets that are hard or impossible to get hold of – but that doesn’t make them good investments.

Millennium Dome memorabilia, for example.

However NS&I’s Index-linked certificates boast big attractions beyond that tiddly 0.01% interest rate.

Specifically: Tax-free status, inflation-proofing, RPI-linkage, a guaranteed positive return, and the full protection of a State-backed product.

In my view, these benefits turn the certificates into must-keeps for most private investors lucky enough to own some in their well-diversified portfolios. There’s nothing else quite like them out there.

Let’s briefly consider each benefit in more detail.

Tax-free

You don’t pay any tax on your return from Index-linked certificates. You don’t have to declare it to HMRC or do any tedious paperwork.

Win, win, win.

Inflation-proofing

NS&I Index-linked certificates are lump sum investments, designed to be held for a specific length of time (or term).

If you keep your money invested for the whole term (i.e. you don’t cash out early) then your money is guaranteed to grow (minutely) ahead of inflation.

Each year the certificate’s value is raised in line with a specific index of inflation, called the Retail Price Index (RPI). If this index goes up at the anniversary of your investment, then so does the value of your certificates (hence Index-linked certificates).

The 0.01% interest rate? That’s just the titchy cherry on the cake.

In contrast, a normal savings account has no guaranteed inflation protection. A 2% interest rate on a cash savings account only delivers a real (after-inflation) return if it outpaces inflation.

If inflation is running at 2.5%, then your 2% cash savings account is losing you money in real terms.

RPI inflation-proofing

Following the 2010 General Election, the government announced it would phase out RPI in favour of the Consumer Price Index (CPI), most notably when it comes to pensions and benefits.

However for reasons unknown, NS&I has been able to stick with using the older RPI measure for these certificates.

This is important because CPI tends to be lower than RPI – partly because of the way it’s calculated, but also it’s claimed because CPI ignores significant housing-related costs.

The percentage change in CPI over the past 12 months has been 0.3%, for example, while the same figure for RPI is 1.3%.

Now, everyone’s personal inflation rate is different – it depends how you spend your money.

If you send your kids to a private school and fees are rising 10% every year, then both CPI and RPI may look moot, compared to your sky-high personal inflation rate.

However there’s no product that will guarantee your capital’s spending power in terms of your own personal consumption of school fees, sexy smalls, or Apple products.

The best you can aim for is to see your capital up-rated by the highest widely-used measure of inflation possible, and most believe that is RPI.

As an aside, the Government has mooted switching 130,000 pensions payable to current and former steelworkers from RPI to CPI in order to reduce Tata Steel UK’s £485m pension deficit – which would happen because future pension liabilities would be lower using the CPI regime.

That’s the flipside of the benefit you aim to get from your Index-linked certificates being tied to the higher RPI measure.

Guaranteed positive return

However you measure it – CPI’s 0.3% or RPI’s 1.3% –  inflation does not look frighteningly high right now.

And as I mentioned it’s been mired below the Bank of England’s official target of 2% for years.

The point of insurance though is to take it out before you need it – and these Index-linked certificates protect you from higher-than-expected inflation as well as deflation like no other asset.

That’s because you’re guaranteed to get a real positive return from them, albeit only juiced by a 0.01% interest rate.4

What about index-linked gilts? Aren’t they just as good?

Nope, the NS&I Index-linked certificates are superior.

Barely trumpeted in the certificate literature – but worth shouting from the rooftops – is the promise that “if the RPI goes down, the value of your investment is protected and will not go down.”

That’s a far better deal than you get with index-linked gilts, which offer no such protection and where a negative RPI (deflation) will entail capital losses.

What about cash?

Cash is far less directly comparable, of course, but it’s worth stating the obvious – that while cash does hold its value in deflationary times (assuming you’re not being pummeled by negative interest rates) it doesn’t offer any inflation-protection, except in as much as the best interest rate you can get will often outpace inflation in practice.

(Historically cash has delivered a real return of around 1% in the UK over the long-term, and you can probably do better if you’re nimble).

So that’s the big attraction of Index-linked certificates. They are guaranteed to hold their value in either inflationary or deflationary times, although that tiny 0.01% interest rate might mean they do little better.

Government backed and guaranteed

The NS&I Index-linked certificates have the great benefit of HM Treasury standing behind them.

The British Government can print money to meet its obligations. Thus in the general sense of the term, the Index-linked certificates are 100% safe and secure.

If you and perhaps your partner have managed to amass a small fortune in Index-linked certificates over the years, this compares well to a High Street savings account, where the FSCS compensation scheme only covers deposits of up to £75,000 per institution.5

True, you can spread cash between multiple institutions if you’ve more than £75,000 to squirrel away, and I’d recommend you do.

But owning NS&I products puts you one step closer to the source of such guarantees.

Of course there are always circumstances in which even this putative 100% backstop could go out the window. Every investment can fail you.

A popular revolution or a takeover of government by a tyrant might do it. Or more likely some nefarious sneak attack by a corrupt or desperate regime (such as introducing onerous and unavoidable holding fees, say, or dramatically fiddling the inflation measure).

But that sort of tail risk goes into the baked beans and shotgun corner of a portfolio. Most if not all other investments will also be up in the air in such circumstances.

In practical terms, NS&I Index-linked certificates are as safe as investing gets.

Penalty box: Cashing in early

A downside to Index-linked certificates is they lock your money away for several years. NS&I explicitly warns you to think about whether you might need to cash them in early, and thus whether they’re right for you.

It’s true you should almost always consider illiquidity as a negative in an investment.

However in practical terms, I don’t think it’s too much of an issue here, so long as you’ve got a cash emergency fund salted away and the other basics of investing covered.

For starters, as we’ve discussed they’re not issuing new Index-linked certificates any more, so there’s not going to be any fleet-footed rate-tarting going on. If you’ve decided you want them, you’re probably going to want to keep them. You’ll not be ducking in and out like you might with Best Buy cash accounts.

Secondly, you can get out early – this is not one of those investments that truly locks up your money up for the period and swallows the key.

There is a penalty for cashing out ahead of time, but I don’t think it amounts to much – unless you’re forced to fold when you don’t really want to.

Cash in the certificates early and you’ll pay a penalty equivalent to 90 days’ interest on the amount you raise.

Remember though, the interest rate is only 0.01%! You’re going to need your reading glasses to work out what 90 days worth of penalty at that rate will amount to. (Clue: It’ll be trivial).

More meaningfully, you will also lose the index-linking on your whole Certificate for that investment year.

This is significant; it could amount to a few percentage points of return foregone in a big year for inflation.

But in practice it just means you should be careful to only cash in at the start of a new investment year, rather than a few months into one (and certainly not in the 11th month!)

Personally, I decided to renew my certificates for the full five-year term – as opposed to the shorter three-year option – following this very logic.

If something better appears after three years (perhaps from NS&I itself) then I can cash the certificates in a day or two after the start of the start of a new investment year and effectively pay no penalty.

It’s a portfolio, silly

You’ll notice I haven’t prattled on about the expected returns of other asset classes as a comparison – except to say that historically all the big guns have done better than the 0.01% per year real return you’ll expect from these Index-linked certificates.

And that’s because it’s not really the point.

We know these Index-linked certificates will hold their value over the next five years. That’s not true of any other asset class.

Cash could conceivably suffer through flat to negative interest rates. Shares and even bonds could do almost anything if markets get really bad. It’s true you can bag a known nominal return from UK government bonds if you buy them individually, but neither you nor I know what inflation will do over the next five years, and that could crush their returns in real terms.

Of course, “holding their value” is hardly the stuff of investing daydreams.

In fact a quick calculation reveals the tranche of Index-linked certificates that prompted this piece have delivered a 2.8% nominal return over the last five years.

My wider naughtily active portfolio delivered a far higher return than that.

However a good portfolio is much more than the sum of its parts. There’s more to it than looking at a poor performer – or even one you expect will most likely perform relatively poorly – and deciding to lop it out. It’s how the portfolio works in concert that matters. How it combines with your investing strategy to hold together in all-weathers.

Something will always be disappointing you in a well-diversified portfolio. If these Index-linked certificates turn out to be the weakest performers over the next five years, then hurrah – because it will mean my vastly larger allocation to equities, for example, will have done better!

True, if I had a massive slug of these certificates then perhaps I’d need to think more carefully about how much money I wanted to commit to merely keeping up with inflation.

But like most people I only have a few percent in them, and as we’ve discussed they’re not making them anymore.

A solid hold, then. If only all investing decisions were this easy.

  1. National Savings and Investments []
  2. That is, a return that keeps the value of your investment unchanged in real terms after a particular measure of inflation. []
  3. That is, inflation adjusted. []
  4. You got a 1% interest rate from the certificates in 2009, and a tub-thumping 1.35% a few years before that. []
  5. Or up to £1 million for certain temporary high balances, such as when you’re buying a house. []

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{ 42 comments… add one }
  • 1 ermine June 1, 2016, 10:27 am

    I actually consider my holding of these as part of my emergency fund. I have about two years running costs in these, and that’s for deep emergencies – medical stuff or the like. Compared to chasing current accounts they as trouble-free and good for all the reasons you listed. I wonder if we will one day have a normal economy and these become available again, or it really is all different this time.

  • 2 The Investor June 1, 2016, 10:30 am

    @ermine — Needs must I guess, but I wouldn’t use them as my emergency fund simply due to the one-way nature of the transaction. In your portfolio they seem more like a one-shot “power up” boost in a video game that you can’t replenish after you use them, compared to an emergency fund that you can dip into because the archetypal boiler blows up. 🙂

  • 3 Thomas June 1, 2016, 10:49 am

    I’m in the same dilemma. Have maxed out current accounts and don’t know where to put the money. Might be used for a home so don’t want to risk it, but RPI + 0.01%… I just can’t help but think I can do better. I have a week before I have to choose….

  • 4 The Rhino June 1, 2016, 10:51 am

    very timely, i bought in 2011 as well and have the recent paperwork from ns&i sitting in my intray

    nice to get your opinion and i’m sure several others will pop up in the thread

    my 2 pence is that it is common to think about what will ‘make most’ in a portfolio and be swayed toward weighting those assets more heavily. it is less common to think along what will ‘lose least’, until, of course, you are sitting in the middle of a period when you are losing. then this way of thinking becomes obvious.

    these certs fall into the ‘lose least’ camp.

    that said, i’m thinking of getting shot and cashing in. my reasoning is simply i don’t hold enough in proportion to the rest of the portfolio for them to make any difference – they account for 0.8%, so not worth the admin for me. the loss of that .5% makes the decision even more easy

  • 5 The Investor June 1, 2016, 11:07 am

    @TheRhino — You write:

    “[They’re] not worth the admin for me.”

    Um, what admin? These have to be the most admin-lite investments I own. Even cash accounts generate more paperwork! 🙂

  • 6 The Rhino June 1, 2016, 11:23 am

    TI – sorry, not the right word to describe what I mean. I mean the brain-space to remember what I own. As a rule, I like to own as few things as possible. If I can get rid of something, then I do. NS&I certs for me aren’t performing any role as I hold too few.

    Really, I need to scrap all my P2P for the same reason, or increase my exposure by a fair bit.

    With NS&I I can’t increase my exposure, so my only other option is to get rid

  • 7 magneto June 1, 2016, 11:27 am

    Thanks very much TI for the excellent comprehensive review.

    It may surprise some, but NS&I IL Certs represent about 25% of our liquid portfolio. So very conservative investors are we then!
    Was built up long ago in the days when real yields were more attractive. Will only be drawn-down if stocks reached very silly low prices; and resources such as bonds and other cash were also running low.
    Kind of a safety net then?

    Have a specific problem with my 97 year old mother’s investments at present. Not wishing to be responsible for her taking stock risk, we encouraged her over many years to buy the NS&I IL Certs.

    Her other assets are in Building Society Accounts, increasingly Instant Access.

    So which should be used first?

    The problem with the NS&I IL certs is the lumpiness of the maturities.
    If maturing Certs are rolled over, the cash well may be needed earlier than the next maturity.
    TI’s article has set me thinking about the option of timing sales for early in the respective investment year.

    The Building Society Accounts are offering the pathetic usual current interest rates, so maybe should be drawn-down first?

  • 8 magneto June 1, 2016, 11:28 am

    Forgot to mention in previous post, mother is now in a Nursing Home with quite high ongoing charges.

  • 9 The Investor June 1, 2016, 11:32 am

    @The Rhino — Fair enough. Must admit I’m the complete opposite. I would own 100 distinctive assets if I could (Ceteris paribus). I very often throw the towel in on some, but that’s because I’m greedy/inconsistent, and almost invariably because I want fodder for some share or another.

    Edit: Actually this is blatantly an exaggeration on my part here. E.g. I own no UK government bonds currently, despite their very distinctive characteristics. Although it’s true I long ago flogged them to buy shares. Thanks for prompting a thought that’s revealed some cognitive dissonance here! 😉

  • 10 The Investor June 1, 2016, 11:36 am

    @magneto — I wouldn’t presume to feel qualified to give any personal or specific advice pertaining to such an important responsibility. In general from what you’ve said though, it does seem like using the cash accounts to enable the optimal timing of turning-in the I-L Certificates might be an option to consider.

  • 11 The Rhino June 1, 2016, 11:37 am

    Well there we have it – I’m like a human incarnation of Occam’s razor. I find ownership exhausting, but I am also in inveterate saver – its a nightmare;) I’m really looking forward to getting the hell out of BTL.

  • 12 Bellabeck June 1, 2016, 12:47 pm

    I cashed in my index linked certificates when they matured last year and put money into ISA. Yesterday I received paperwork for 5 year maturing Fixed Interest certificate with option to renew but only 1.60% interest. Any thoughts ?

  • 13 magneto June 1, 2016, 1:48 pm

    Others may offer some suggestions.

    However their answer(s) may depend on what the rest of the portfolio looks like?

    At first glance 1.6% nominal for a five year lock-in, does not sound attractive, esp if interest rates do one day rise. But then as TI pointed out with their IL cousins, there is an escape route.

  • 14 Neverland June 1, 2016, 2:05 pm

    People go on about the government’s generosity to savers with LISAs, Help-to-buy ISA, pensioner bonds, extra interest personal allowances, etc.

    But then they forget that once every almost every year every person used to be able to invest £30,000 in ILSCs and get a government guaranteed real return a couple of per cent above inflation tax free

    Makes me yearn for the days of the Sugababes and the Ford Sierra

  • 15 Sean June 1, 2016, 2:11 pm

    Excellent article, agree with every word. Just under 20% of my total savings and investments are in these in about ten tranches ranging from a few grand to about 15 grand and dating back, in some cases, to between 10 and 15 years ago.

    I’ve already had 4 or 5 tranches rollover so far this year. I have yet to cash any in, although I do think about it each time, for all the same reasons TI refers to.

    I always think where would I put the money, especially as I’m already maxed out on the Santander 123 accounts, and having just retired at 60 I feel I have an almost sufficient percentage in the stock market (which is increasing anyway as I put the max £3,600 gross into each of his and hers SIPPs) and end up leaving them alone as I know they can never make less than RPI. I think I would only cash them in (possibly) if the government ever changed them to CPI (which I fear they will do one day) or if the stock markets tumbled by tech-crash or financial crash magnitudes.

    But then I’d probably be too scared to do anything.

    The good thing about having lots of tranches is that there is always at least one that rolled over in the last few months which could be cashed in with only a small penalty.

    I don’t have any bonds, instead using these instead of inflation linked gilts and “high interest” (ha ha) savings accounts instead government/corporate bonds.

  • 16 SurreyBoy June 1, 2016, 3:02 pm

    I dont have any of these certificates. The article was very useful to me because my starting point was: what is the point of such paltry returns? Yet by the end I did indeed see the benefits of these certificates, and their place in a diversified portfolio. So ive learnt something and its a good reminder (to me if nobody else) that this investment lark isn’t all about chasing the upside.

  • 17 Richard June 1, 2016, 3:45 pm

    I have about 10% of my “portfolio” in ILSCs. They were bought ad hoc, a mix of 3 and 5 year certificates. Something rolls over most years so if I ever needed the money it’s accessible.

    I treat these as my non-emergency fund cash buffer – I really can’t be doing with looking around every year for a “best buy” that then has a rate cut, plus the “is it / isn’t it?” tax element now that interest on bank accounts, etc, is gross but have the Personal Savings Allowance and the nil-rate band Savings Allowance.

    RPI, guaranteed loss-free, tax-free, no hassle, 100% Govt backed works just fine for my “longer-term” cash holdings. I wouldn’t sell them, but I’m not sure I’d increase my 10% if they were available.

    But who knows what inflation (or equities) will look like in a Corbyn/Trump/Putin/Assad/Kim world…

  • 18 Geo June 1, 2016, 4:30 pm

    Well I am holding my completed envelope for cashing in, but… only as part of the plan to pay of the mortgage – otherwise as part of a portfolio i would lovingly keep them.

  • 19 gadgetmind June 1, 2016, 5:05 pm

    We’ve got 4 x £15k between the two of us that mature in August. Plan is to roll them over for all the reasons given above. I hope to *never* touch this as it’s part of our “equities have crashed” living fund to tide us over 2-3 years.

    Hmm, can we roll over just 4x £15k or 4x what they are worth now?

  • 20 Richard June 1, 2016, 5:08 pm

    You can roll over the whole amount.

  • 21 xiox June 1, 2016, 6:21 pm

    I rolled mine over from 5 to 3 yrs. I thought it can’t be possible for the interest rate to decline! However, I suppose it’s possible they could be withdrawn altogether or changed to CPI next time.

  • 22 Sally June 1, 2016, 7:24 pm

    I must be very, very cautious too, as I have around 20% of my portfolio in these certificates, but I started buying three-year certificates around 10 years ago to save for my children’s university fees (just in case ability to pay should become more important than academic ability; I certainly never paid private school fees). Now, thanks to that Martin Lewis chap, apparently most students borrow their uni fees (which is a different discussion altogether), so I appreciate your article and the wise comments here that it’s still worth hanging onto them.

  • 23 Minikins June 1, 2016, 8:46 pm

    @TI Thanks for a really great and timely analysis of these super safe if rather boring IL certificates.

    Hilarious that you’ve managed to spice it up with a eunuch and a titchy cherry!

    My mother won’t be rolling over this years tranche. I don’t have any, I prefer the thrill of a bond.

  • 24 dearieme June 1, 2016, 9:23 pm

    And they are heritable. You peg out, and ns&i will obligingly reregister them in the name of your widow, assuming that’s what you wanted.

  • 25 Gaz June 1, 2016, 9:49 pm

    I have 25k in their 5 year certificate, which will mature November 2017. As I’ll be looking to purchase my first flat towards the end of this year, I was thinking about cashing it (or part of it) in to help boost my deposit.

    Would yourself or others recommend this, or would it be better to reinvest them and hold on to them for as long as I can? (I’m currently 23).

  • 26 The Investor June 2, 2016, 2:03 pm

    @Gaz — I don’t think anyone can tell you specifically what to do, it will depend on a whole host of your personal circumstances. We can explain how the different assets work and the pros and cons and so forth, but I can’t tell you what you should do yourself. Good luck!

  • 27 The Investor June 2, 2016, 2:04 pm

    @Minikins — You write: “I don’t have any, I prefer the thrill of a bond.”

    We are a hotbed of adrenaline junkies here, eh? 😉

    @all — Thanks for the comments, glad the article was useful.

  • 28 The Rhino June 2, 2016, 4:34 pm

    @TI its like ALDI, they know what I need before I do, and there it is waiting on the shelves.

    You have the same knack with the old monevator articles..

  • 29 grey gym sock June 2, 2016, 10:58 pm

    when i were a lad, i had some 5th issue index-linked certificates, which paid RPI + 4.5% (this is a bit like the 4 yorkshiremen joke in reverse) – and i didn’t even buy as many of them as i could.

    i haven’t had any national savings certificates for a while, so no decision to make about them. no, i’m not jealous 🙂

  • 30 dearieme June 3, 2016, 12:59 am

    @ggs: I remember an FT article of the time pointing out that after tax and charges, equities would have lost to ILSCs in most years since, I dunno, Methuselah. Maybe that’ll become true again.

  • 31 The Accumulator June 3, 2016, 10:57 am

    @ Magneto – re: lumpiness, you can make partial withdrawals from the certs. Though you’d lose inflation linking on the whole amount for the year.

    Inflation is a huge financial threat for retirees – though it doesn’t seem like it right now – and there’s no better tool against it than these certs.

  • 32 The Investor June 3, 2016, 11:46 am

    @TA — I think @Magneto was referring to a question about the fixed income flavour of NS&I Certificates, not these Index-linked ones. 🙂

    Totally agree with the rest of your comment, of course. If you could still buy the Index-linked flavour I’d definitely be investing in a few more.

  • 33 Gaz June 3, 2016, 5:31 pm

    @TI Thanks for the info, your “If you could still buy the Index-linked flavour I’d definitely be investing in a few more” comment told me all I need to know – I think I’ll try to hold on to them for as long as I can.

  • 34 GHDorset June 3, 2016, 8:41 pm

    I’m a big fan of Index-Linked Savings Certificates.

    When introduced in 1975 they were for pensioners only – a means to protect some of their cash savings or pension lump sums from the then high inflation. They were available to all ages from 1981.

    To me they were a simple, tax-free, Government-backed way to retain the value (as measured by RPI) of part of my savings.

    So I regularly bought small amounts over the years, and rolled them over. Now I’ve retired, I get index-linking on this part of my savings, which is important to me.

    But I wonder if, when inflation is higher, HM Treasury will still offer index-linking on matured certificates.

  • 35 Comet June 3, 2016, 11:32 pm

    I rolled mine over earlier this year, for much the same reasons.

    In terms of asset allocation, should they be treated as bonds or cash?

  • 36 magneto June 4, 2016, 12:00 pm

    @TA & TI

    Apologies for the confusion.
    Comment 13 re the fixed interest versions related purely to comment 12 from Bellabeck!
    The “@Bellabeck” somehow was somehow overlooked.

    To clarify, the Magneto family are only in the index linked variety.
    That is why the article, is for us, so pertinent and timely.

    “But in practice it just means you should be careful to only cash in at the start of a new investment year, rather than a few months into one (and certainly not in the 11th month!)” TI

    This point and those in the article’s immediately preceding paras, so blindingly obvious in hindsight, had not fully registered in Magneto’s brain until TI elaborated in the article.
    Only difficulty now is getting hold of Cash-In Early Forms from the NS&I web-site, as and when they may needed, probably a year or two down the line, (the forms no longer being mailed out on a regular basis).

    @Comet
    We consider NS&I IL Certs as Cash, due to lack of capital fluctuations with any market fluctuation.
    However perhaps it does not really matter what they are called?
    The most important thing is that they are not stocks!
    For many investors there is a horror in holding cash, mainly due to the long-term ravages of inflation. But this inflation adjusted instrument seemingly overcomes that drawback?

  • 37 The Accumulator June 4, 2016, 12:22 pm

    @ Comet – They’re part of the fixed income part of your portfolio i.e. the bonds / cash component. They’re effectively short-term index-linked bonds. Ideally, you’d have a ladder of them – with one maturing every year that you could take to cover your annual income needs. If only life would be so neat.

  • 38 James June 4, 2016, 1:56 pm

    Unfortunately I’ve read this a little too late – cashed my certificates in a few weeks back, which were bought in 2011.

  • 39 Old_eyes June 4, 2016, 2:20 pm

    @TI – I have just rolled over my one holding for the full five years for exactly the reasons you give. It ain’t going to make me a lot of money, but it is superbly defensive against an uncertain world – anyone got a reliable forecast about what happens to inflation and yields on other assets post the referendum?

  • 40 Disorganised June 5, 2016, 3:27 pm

    This article is very timely as I’ve just received a notification letter from NS&I concerning some maturing ILSC. I’d completely forgotten that I had bought them and was convinced that I was the beneficiary of a fortuitous error until I eventually found the certificates filed in the most unlikely place. My question now is that I have a reasonably diversified investment holding but still have an effective lifetime fixed mortgage at 3%. Might I be better off paying down the mortgage penalty-free rather than rolling over?

  • 41 Humble Pie June 5, 2016, 9:21 pm

    Unfortunately, I wasn’t lucky enough to get any of the NSI index linked certificates before the Government decided to withdraw them.

    Can anyone recommend an ETF or fund that could be used as an alternative?

    What I’m really looking for is a short duration UK inflation linked gilt fund. (something passive and or low cost). All the ones I’ve found so far seem to have a very long duration (20 years) which is a bit too much interest rate risk for my liking.

  • 42 The Investor June 6, 2016, 9:19 pm

    @Humble Pie — Unfortunately, as I say in the article I don’t believe there is a straight swap alternative. To recreate something approximating the equivalent exposure one could aim to derive a collection of IL gilts, conventional gilts, and cash that offers roughly equivalent protection from inflation/deflation and on a fixed time frame, as best you are able.

    But really that would just be an extension of one’s existing exposure to fixed income, rather than a distinct alternative-ish asset, so it’s a bit of a fabrication and not what you’re asking for I appreciate.

    @Disorganised — I am loathe to give personal advice to most questions, but most particularly anything to do with paying down mortgages! Huge can of worms. (e.g. I had to close this thread here: http://monevator.com/not-paying-off-my-mortgage/#comments)

    Generally speaking I would look at my overall portfolio mix versus my aims and goals, and my ability to meet my mortgage commitments now and in the future. Something may be expected to deliver an inferior return but serve some other purpose.

    E.g. an Index-linked Cert is more liquid than a chunk of housing equity, but if you have a far larger existing cash holding sitting around then perhaps that isn’t a big attraction to keeping hold of them.

    I’d also consider the “not making them any more” argument, especially if the amount you’ve got isn’t going to change your life by dramatically decreasing (and hence de-risking) your mortgage exposure. As discussed in a comment above, I have a soft spot for the idea of ad hoc investments that genuinely diversify a portfolio. But I do keep excellent records! 😉

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