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What about deflation?

Deflation is where prices of goods and services fall over time instead of rising. It is sometimes known as “negative inflation”.

How it affects your investment

The most important thing to remember is that if you keep your Index-linked Savings Certificates for the whole term, you will always get the guaranteed interest regardless of any deflation during the period. Your original investment will never fall in value year-on-year. The interest will be added on each anniversary, at the rate for that year. So even during a period of deflation your capital is always protected and you will earn interest on each anniversary. For example, if there is deflation in the first year of your investment, you will still earn interest on the full amount invested. And if this is followed by inflation in subsequent years, you will benefit from interest and index-linking. Click below to see an illustrative example.

• Illustrative example

 

What will happen if I invest now and we have a sustained period of deflation, resulting in the whole term being in deflation?

If you keep your investment for the whole of your chosen term, you will always receive the guaranteed interest. On each anniversary if the index-linking is negative it will not be applied to your Certificate, but the guaranteed interest will. On each anniversary your investment will grow in value, regardless of any deflation.

Will my investment ever be lower than the amount I invested?

No. We will add interest, and any positive index-linking, on each anniversary of your Certificate. If there is deflation from one anniversary to the next, you will still receive the guaranteed interest. If you cash in within the first year, no index-linking or interest is payable but you will receive your original investment back in full.

The valuation of my Certificates has gone down in the past couple of months, what will happen to my investment if inflation carries on decreasing?

If you keep your Certificate(s) for the whole of your chosen term, you will receive the full guaranteed compound interest rate for the Issue you bought, plus any positive index-linking due on each anniversary.

If you ask for valuations of your Savings Certificates between anniversaries, their value can go up or down from month to month, depending on whether the RPI figure has risen or fallen compared to the previous month.

Remember though that a valuation is only relevant if you cash in your Certificate that month. We calculate the index-linking by looking at the RPI figure applicable to the month you cash in and comparing it to the relevant RPI at the previous anniversary. If you’re not cashing in, interest and any index-linking for the year are only added on each anniversary of your Certificate.

If you do cash in early, the value of your Certificate will never fall below the previous anniversary value.

The valuation of my Certificates has gone down in the past couple of months, what will happen to my Certificates if I cash in now?

Within the first year
Certificates cashed in within the first year don’t earn any index-linking or extra interest.

Between anniversaries
Each month we calculate the index-linking and interest due, so the value of your Certificates can go up or down from month to month, depending on whether the RPI figure has risen or fallen compared to the previous month.

If you cash in between anniversaries you will receive the previous anniversary value plus guaranteed interest for each complete month since your anniversary date, plus any positive index-linking. In the event of deflation since the last anniversary, you will receive the previous anniversary value plus guaranteed interest for each complete month since your anniversary date – we will not apply ‘negative index-linking’ to your Certificate so you will not lose any of your guaranteed interest.

Certificates on an anniversary or maturity date
If you keep your Certificate for the whole of your chosen term you will receive the previous anniversary value plus guaranteed interest rate for the Issue you bought, plus any positive index-linking due on each anniversary.

If you cash in on an anniversary date you will receive guaranteed interest at the rate for that year, plus any positive index-linking. In the event of deflation since the last anniversary, you will receive the previous anniversary value plus guaranteed interest for the year – so the value of your Certificate will always increase year-on-year.