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NS&I: how much are my index-linked bonds worth?

It's been a year since the last batch of NS&I index-linked bonds was launched. But with inflation slowing, how's your investment looking now? 


by Victoria Bischoff on May 17, 2012 at 09:00

NS&I: how much are my index-linked bonds worth?

It’s been a year since thousands of savers, alarmed at the increasing rate of inflation, began ploughing money into state-owned National Savings and Investments (NS&I)’s last batch of index-linked bonds.

The popular savings bond, which was withdrawn after just four months last September owing to overwhelming demand, offers valuable protection against the eroding effect of inflation.

But now the rate of inflation has slowed, how is the investment doing?

Interest rate confusion

A number of Citywire readers recently expressed some confusion over how exactly the rate of interest on NS&I’s index-linked bonds is calculated.

First, it’s important to understand that NS&I index-linked bonds pay out according to changes in the retail price index (RPI), not the annual inflation rate you see splashed in the headlines. These are two different things.

Each month the Office of National Statistics (ONS) collects prices for a range of goods and services to calculate the RPI. When prices rise, the index rises, and when prices fall, the index falls.

The latest figures show that the RPI hit 240.8 in March 2012, up from 232.5 in March last year – starting from a base figure of 100 in 1987.  

It’s worth pointing out that RPI is usually a higher number than the consumer price index (CPI) – the government’s preferred measure of inflation – as it includes housing costs whereas the CPI does not.

Moving onto the annual rate of inflation, this measures the rate at which prices are changing, and is expressed as a percentage. For example, in March this year the rate of inflation was 3.6%, down from 5.3% in March 2011.

However, while the rate of inflation has fallen in the past 12 months, it’s important to remember that prices are still increasing, just at a slower rate. When the rate of inflation drops, it’s called disinflation. This is different from deflation, which means prices – or the RPI figure – have dropped.  

Those concerned they will not receive an index-linked interest payment because the rate of inflation is lower than what is was when they bought their bonds, therefore, need not worry yet because the RPI is still increasing.

How the NS&I index-linked bond works

NS&I calculates the interest on an annual basis using RPI figures from the start and end of each investment year – ignoring the monthly changes in between.

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19 comments so far. Why not have your say?


May 17, 2012 at 13:38

Or you can buy an Index Linked Gilt via a broker, but the market price paid may mean you lose some capital if held to expiry. Or you can buy an ETF (Exchange Traded Fund) or look at an active bond fund, but beware charges, which can be high for private investors (circa 1.2%+ a year). Vanguard offer cheap passive bond funds.

If inflation takes off equities and property should keep in touch over the long term, but beware a volatile bumpy ride in the short to medium term!

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Ian Phillips

May 17, 2012 at 14:02

I've just rung NS&I as mine's anniversary is Friday......they were very helpful and gave me a total value today (an increase of 3.4%) but suggested I call on Saturday to get the one year increase.......hopefully this will include the 0.5% bonus as well....

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May 17, 2012 at 14:12

I noticed that the BOE are adding items to the inflation basket that are bound to go down in price: SD memory cards, blu-ray players etc... I have a feeling that most peoples rate of inflation is much higher than the BOE's basket shows.

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Alan, Bristol

May 17, 2012 at 14:39

Thanks Victoria for summarising the original Terms & Conditions that were attached to this NS&I Index-Linked offer. However, I doubt if it will help Joe Thick, who possibly piled into this offer without reading (or understanding) the small print.

It is amazing the number of misconceptions that some Citywire readers have construed because they have failed to grasp the technical basis on which these index-linked bonds were offered. Is it that difficult to distinguish between the annual rate of inflation and the incremental changes in RPI over any given period?

Some people obviously need protecting from themselves by our Nanny State!!

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May 17, 2012 at 14:55

re Jonathon - I have read somewhere that pressures are brought to bear on the relevant civil servants to spot items in the 'RPI basket' that are just about to increase in price and eject them, substituting them with 'new entrants' that have been identified with an imminent price reducing profile.

Theres lies, damn lies, and politicians statistics.

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peter hart

May 17, 2012 at 14:56

Just had a 3 year bond mature. I rolled it over. The annual rate of return was 5.7% As a higher rate tax payer (40%) I am more than happy with that.

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J Bewey

May 17, 2012 at 15:00

Remember the interest received is Tax Free. Therefore around 4% tax free for a 'safe' investment I would call pretty good. The earlier issue in 2010 has given even better returns and bonus interest.

A very good article

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Steve Hayes

May 17, 2012 at 15:40


I have read somewhere that pressures are brought to bear on the relevant civil servants to spot items in the 'RPI basket' that are just about to increase in price and eject them, ....

oh yeah, where exactly, Daily Star, BNP Gazette, Anarchists' Occasional??

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May 17, 2012 at 15:48

I honestly can't remember where I read it, but who monitors the rationale of the substitutions to ensure they are consistent and not arbitarily 'tweeked' on occasion - who represents the savers interest (and the benefits benificiaries interests as benefits are linked to inflation) to ensure the resulting RPI figure is truly representative, because it often seems to differ with people's experience?

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May 17, 2012 at 15:49

MoneyObserver, I'd be interested to see that article. I'm sure they wouldn't want it to stray too far from real inflation as BOE staff pensions are linked to RPI.

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Steve Hayes

May 17, 2012 at 20:08

Th real answer is here

and it's done by statisticians. Changes are made in January apparently, partly in consultation with other EU countries. It's not proof positive Mr Osborne doesn't bend someone's ear, but it seems unlikely.

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May 18, 2012 at 10:50

I have a 3 year bond which has already been rolled over once, and is due to mature next month - can it still be rolled over again into an index linked bond even though there are no current index linked offerings by NS&I? I too have been happy with the performance over the last 6 years - my goodness where have those 6 years gone?! Although I agree that the RPI figures have to be contrived, inflation is way higher than the stated figures.

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May 18, 2012 at 12:14

I agree with you Tricky - even though I feel the RPI figure is doctored I too have rolled over a maturing NSI index linked certificate, because it does at least approximate to inflation.

If you dont rollover but come out of this investment and go into a straight fixed deposit, then when that matures, you could find there is no NSI index linked offering available if you wanted to go back in. The government is less likely to offer this product if it thinks RPI is about to take off, which is just when the saver needs it.

So rollover seems a good option to me in these troubled times.

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May 18, 2012 at 12:29

"Savers should remember that if the RPI figure is lower at the end of one year, they will not receive any index-linking interest that year, although nothing will be deducted from their initial investment."

Hahahaha, what are the chances of of deflation when the BOE have their finger on the printing press button?

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dominic lloydsbod

May 18, 2012 at 13:09

Answer to Tricky: I have had a three year bond that was rolled over for the third time earlier this year, so you should be able to (As I recall, NS&I cut the RPI +1% to RPI +0.5%. But still a good deal in these troubled times).

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Anthony Clough

May 20, 2012 at 11:53

Well nsand i provide a caclculator on their website to work out the value of index-linked bonds - updated every month when the RPI index percentage change is given.

How can you not know of this?

The odd thing is that the actual RPI index is almost never mentioned. Only recently has it been given by nsandi together with the index percentage change.

If it is plotted monthly for the last 8 years or so a remarkable fact appears. it has gone from ~ 190 in 2004 to ~ 240 now in an essentially linear fashion (there was a bump followed by a dip in 2008 for some reason!) but basically it has steadily increased by ~ 27% from its value in 2004 ie by ~ 3.4% of its 2004 value each year.

Hence despite all the fiddling governments and bankers have done over the years with interest rates, the composition of the index and currencies both RPI and CPI inflation indices have inexorably increased at constant rates!

This seems to be one of the few more prevailing certainties - i'm surprised it isn't given more prominence in the financial press!

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peter hart

May 20, 2012 at 12:41

You can roll the bonds over forever unless the rules change. You can also convert fixed interest ( when they mature ) to index linked even if no new issues are on offer. At least you could when I did it last.

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May 20, 2012 at 12:52

peter hart:

That really would offer a back door route into NSI index linked bonds, when known were being offerred by NSI, or owned by the saver in question - seems worth getting a definitive confirmation.

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peter hart

May 20, 2012 at 17:45

Section 5 of the NSI cash in or reinvest form still suggests you can go from fixed interest to index linked or the other way round. At the moment you cant invest in Fixed Interest either. Probably worked out it was a way into index linked.

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