A refuge from the ills of inflation

CONTROLLING inflation is the task of the Monetary Policy Committee, which consists of Eddie George, the Governor of the Bank of England, and his team of eight good men and women and true. They meet each month and review the latest news and if they think the evidence justifies it they put interest rates up without fear or favour to control inflation, writes Clifford German.

Controlling inflation is not an easy or an exact science, and there is no guarantee that they will succeed. That said, inflation is unlikely even to get near double figures in the foreseeable future.

But inflation can do far more damage to your savings than taxation ever can. If the experts cannot guarantee success, what if anything can investors do? Investors who go into fixed rate investments like National Savings certificates are stuck for five years at the mercy of inflation, most banks and building societies charge penalties on investors in fixed rate TESSAS or term accounts who want their money back early. Even variable rate investments and instant notice accounts do not guarantee to keep pace with inflation, and yields on shares and unit trusts fail to keep up with rampant inflation and could even go down if business confidence is badly affected.

The only safe refuges from inflation are index-linked gilt-edged stocks issued by the Treasury, and index-linked Savings Certificates issued by the National Savings movement. Both the capital and the interest on index-linked gilts and savings certificates are linked to the retail price index, which is the standard measure of inflation in the UK. Until recently only the state could offer a guarantee against inflation and even now only the Birmingham Midshires offers inflation-proofing in the shape of its "inflation-beater TESSA" which pays 3 per cent above inflation and is also free of income tax and capital gains tax if it is held for five years.

The first index-linked savings certificates were known as granny bonds and only available to the elderly, although now they are available to anyone. The interest on the 13th issue of index-linked savings certificates which is now on sale at Post Offices or by post from National Savings is just 2.25 per cent above the rate of inflation current eight months earlier just to make things complicated.

But you can invest anything from pounds 100 to pounds 10,000 in each issue, the value of the investment grows in line with the rate of inflation and the interest itself is also indexed so that you will get 2.25 per cent on the increased value of the capital. Both capital and interest are also tax-free.

Certificates cashed in the first year do not qualify for indexation, but thereafter the indexation and interest are added at the end of each completed month from purchase, and the certificates can be cashed with only a slight loss of interest. After five years they can be cashed in at full value, reinvested in the current issue or kept as an indexed certificate at a slightly lower rate of interest.

Index-linked gilt edged stocks were introduced in 1981. The capital is both indexed and free of capital gains, the interest is indexed and paid half-yearly but is subject to income tax. There is currently a choice of 12 issues, with different coupons, issue dates and maturity dates. For example Treasury IL 2.5 per cent 2001 was issued in August 1982 and is now worth around pounds 200 for each pounds 100 unit and will continue to grow with inflation until it matures in three years.

Gilt-edged stocks in multiples of pounds 100 of stock can be bought from post offices (or via forms available at post offices), through the Bank of England brokerage service (0800-818614) or via the internet at http://www.bankofengland.co.uk

Suggested Topics
News
people'It can last and it's terrifying'
Sport
Radamel Falcao
footballManchester United agree loan deal for Monaco striker Falcao
Sport
Louis van Gaal, Radamel Falcao, Arturo Vidal, Mats Hummels and Javier Hernandez
footballFalcao, Hernandez, Welbeck and every deal live as it happens
Sport
footballFeaturing Bart Simpson
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
Life and Style
ebooksA superb mix of recipes serving up the freshest of local produce in a delicious range of styles
Life and Style
ebooksFrom the lifespan of a slug to the distance to the Sun: answers to 500 questions from readers
News
peopleA spokesperson said the support group was 'extremely disappointed'
Voices
A man shoots at targets depicting a portrait of Russian President Vladimir Putin, in a shooting range in the center of the western Ukrainian city of Lviv
voicesIt's cowardice to pretend this is anything other than an invasion
News
i100
Arts and Entertainment
Alex Kapranos of Franz Ferdinand performs live
music Pro-independence show to take place four days before vote
News
news Video - hailed as 'most original' since Benedict Cumberbatch's
Arts and Entertainment
booksNovelist takes aim at Orwell's rules for writing plain English
Arts and Entertainment
The eyes have it: Kate Bush
music
News
i100
Life and Style
tech

Apple agrees deal with Visa on contactless payments

Life and Style
techIf those brochure kitchens look a little too perfect to be true, well, that’s probably because they are
News
i100
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs General

    Technical Software Consultant (Excel, VBA, SQL, JAVA, Oracle)

    £40000 - £50000 per annum: Harrington Starr: You will not be expected to hav...

    Technical Sales Manager

    £45000 - £53000 Per Annum plus bonus plus package: The Green Recruitment Compa...

    Humanities Teacher

    £110 - £135 per day + Competitive Rates: Randstad Education Maidstone: Outstan...

    SQL DBA/Developer

    £500 per day: Harrington Starr: SQL DBA/Developer SQL, C#, VBA, Data Warehousi...

    Day In a Page

    Alexander Fury: The designer names to look for at fashion week this season

    The big names to look for this fashion week

    This week, designers begin to show their spring 2015 collections in New York
    Will Self: 'I like Orwell's writing as much as the next talented mediocrity'

    'I like Orwell's writing as much as the next talented mediocrity'

    Will Self takes aim at Orwell's rules for writing plain English
    Meet Afghanistan's middle-class paint-ballers

    Meet Afghanistan's middle-class paint-ballers

    Toy guns proving a popular diversion in a country flooded with the real thing
    Al Pacino wows Venice

    Al Pacino wows Venice

    Ham among the brilliance as actor premieres two films at festival
    Neil Lawson Baker interview: ‘I’ve gained so much from art. It’s only right to give something back’.

    Neil Lawson Baker interview

    ‘I’ve gained so much from art. It’s only right to give something back’.
    The other Mugabe who is lining up for the Zimbabwean presidency

    The other Mugabe who is lining up for the Zimbabwean presidency

    Wife of President Robert Mugabe appears to have her sights set on succeeding her husband
    The model of a gadget launch: Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed

    The model for a gadget launch

    Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed
    Alice Roberts: She's done pretty well, for a boffin without a beard

    She's done pretty well, for a boffin without a beard

    Alice Roberts talks about her new book on evolution - and why her early TV work drew flak from (mostly male) colleagues
    Get well soon, Joan Rivers - an inspiration, whether she likes it or not

    Get well soon, Joan Rivers

    She is awful. But she's also wonderful, not in spite of but because of the fact she's forever saying appalling things, argues Ellen E Jones
    Doctor Who Into the Dalek review: A classic sci-fi adventure with all the spectacle of a blockbuster

    A fresh take on an old foe

    Doctor Who Into the Dalek more than compensated for last week's nonsensical offering
    Fashion walks away from the celebrity runway show

    Fashion walks away from the celebrity runway show

    As the collections start, fashion editor Alexander Fury finds video and the internet are proving more attractive
    Meet the stars of TV's Wolf Hall... and it's not the cast of the Tudor trilogy

    Meet the stars of TV's Wolf Hall...

    ... and it's not the cast of the Tudor trilogy
    Weekend at the Asylum: Europe's biggest steampunk convention heads to Lincoln

    Europe's biggest steampunk convention

    Jake Wallis Simons discovers how Victorian ray guns and the martial art of biscuit dunking are precisely what the 21st century needs
    Don't swallow the tripe – a user's guide to weasel words

    Don't swallow the tripe – a user's guide to weasel words

    Lying is dangerous and unnecessary. A new book explains the strategies needed to avoid it. John Rentoul on the art of 'uncommunication'
    Daddy, who was Richard Attenborough? Was the beloved thespian the last of the cross-generation stars?

    Daddy, who was Richard Attenborough?

    The atomisation of culture means that few of those we regard as stars are universally loved any more, says DJ Taylor