News

Ignore inflation at your peril

by James Chu
08/12/2017
Ignore inflation at your peril

National Savings & Investments (NS&I) have come back to the market with their fixed rate bonds. But are they representing value for investors?

According to consumer savings websites, the 3 year bonds pay a “market leading” annual rates of around 2.2%, and 1 year bonds pays 1.5%.

The rationale for investing in NS&I bonds is the guaranteed offered by HM Treasury, and an interest rate higher than base rate of 0.5%.

Smart investors should question these arguments. These are very poor deals as the interest rates offered are below inflation.

The latest inflation figure was 4%, based on Retail Price Index published by the Office of National Statistics. The market thinks it will remain above 3% over the next 3 years, based on current trading prices on inflation linked UK government bonds.

If you invest £10,000 today in the NS&I 3 year bond, you will get about £10,675 in 3 years time. But if inflation is 3% for next 3 years, your wealth should grow to £10,927. Economists will say your purchasing power is being eroded with the NS&I bond. You would have lost money in real terms, after taking into account inflation, by putting your savings in this 3 year bond.

Instead, smart investors should use other investments that give much better yield and take a controlled amount of risk. Reyker has various investment products that fit your needs. That includes an innovative income structured investment linked to FTSE 100 (see more here). Our Real Asset Strategy (RAS) portfolios are designed to deal with the risk of rising inflation which you should look at.

Don’t ignore inflation. Talk to us today on smarter savings and investments (investments@reyker.com; 020 7397 2597).

James Chu

James Chu

James is Director of the Markets and Investments Team at Reyker. A CFA member and industry expert, James specialises in Structured Products, derivatives and development of service offerings for Reyker. A face at most industry events, James is sure to provide insight into some of the most controversial topics in the market today.