The 5 Year Index Linked Certificates taken out in August 2011 (Issue 48) start to mature with National Savings and Investments offering a fairly mediocre 0.01% above inflation.

I suspect that a significant number of people will see this as a reason to cash in their investments but this would often be a bad idea as the value of the Index Linked Certificates is their tax free nature and the inflation linking rather than the percentage they offer above RPI.

With Sterling falling significantly against other world currencies it is quite likely that over the next couple of years we see significant price inflation and therefore some careful thought is required before cashing them in. Inflation may well start to run at levels we have not seen for many years, and if inflation moves to, for example, 4% a tax free return of this level is worth 5% to a basic rate tax payer and 6.7% to a higher rate tax payer.

The issue is further exacerbated by the fact that it looks likely that interest rates will fall further, meaning that other similarly saved investments will start to see diminishing returns and unless an individual wants to take capital risk by investing in other assets it seems hard to see a place where the returns can be exceeded risk free.

Opinions & Insights

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