Dear Listener

Inflation fell again this week. Just when the Post Office launched its latest inflation linked bond. More on that new offer in a moment but first with inflation heading down should you consider cashing in your National Savings Index Linked Certificates – if you were lucky enough to buy them in the past?

First, never ever cash them in before the first anniversary. You will get back only what you paid in. So the latest issue which went on sale from May to September 2011 should not be cashed in until later this year if you want any return at all. When that anniversary passes then you can cash them in to get inflation proofing from the date you bought them to the date you cash them in (the index used is the one issued the month before you took them out and cash them in (so if you bought them in May it is the March index published in April). There will be a fraction of a percent extra added on as well.

Although inflation is on its way down the latest forecast by the Independent Office of Budget Responsibility predicts that RPI inflation will stay well ahead of CPI and slowly drift up to 4% by the first few months of 2017. And 4% interest tax-free is a better return for all taxpayers than anything currently on the market.

The OBR predicts RPI will drift down from 3.9% in the first quarter of this year to 2.8% by the last quarter. But after that it will steady and then rise quarter by quarter to reach 4% by the start of 2017.

For basic rate taxpayers those would not be bad returns especially when you add on the tiddly bit extra they pay on top. For higher rate taxpayers they are far better than anything on the market now. Even the nadir of 2.8% is equal to 3.7% taxed at basic rate and 4.67% at higher rate. If you are lucky enough to pay 50% additional rate tax it is equal to 5.6% taxable interest.

So what about the latest offer from the Post Office? Its new inflation linked bond pays annual RPI plus 0.25% a year over three years. Or you can choose a five year bond paying annual RPI plus 0.5%. But three things can make them much poorer value than the National Savings certificates. First, the interest is taxable – so they are best for non-taxpayers. Second, there are tough penalties for early encashment – so you have to be sure you will not need your money for three or five years. And third for those with high savings, the account is only protected up to £85,000 if Bank of Ireland UK, which runs the bond, goes bust. National Savings it is not.

***IN MONEY BOX THIS WEEK***

People in the armed forces serving in Afghanistan are being refused extra time to complete their self-assessment tax return. We talk to a serviceman’s wife about the problems this has caused for her officer husband now in his ninth month of overseas service.

The Royal Mint is churning out new steel 10p and 5p coins, the first change in metal for our ‘silver’ coins since 1948. They will be the same diameter and weight but that means they have to be 11% thicker. Will hundreds of thousands of coin operated machinery be upgraded in time?

If you try to sell a mobile phone you might find the price is fairly mobile too. Websites offer one price but when you post the phone to them suck their teeth about the condition and offer you less. If you reject the offer you pay for the return postage. Where best to sell old technology?

As the rates paid on Treasury bonds tumble, the Government steps in to make sure there is at least a 2% return on pension money you drawdown.

And another tax deadline looms. If you have savings but don’t pay tax you have until 31 January to claim back any tax automatically – and wrongly – taken from your interest in 2005/06 and not long to claim that for 2006/07 and 2007/08.

Will we squeeze all five items in to our 24 minutes of Radio 4 airtime? Tune in to find out Saturday at midday, repeated Sunday at 9pm. Or of course online anytime www.bbc.co.uk/podcasts/series/moneybox - or download the top audio business podcast (ours) through iTunes.

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Tax and self-assessment is the topic on Money Box Live on Wednesday at 3pm. Call with your question after 1pm on Wednesday 18th on 03700 100 444 or email through the website when the programme page is up later today. Or of course just listen.

Best wishes,

Paul

PS. I will be on Breakfast on BBC One around 0845 on Saturday with a programme trail and back on Breakfast later in the week, probably on Thursday and usually around 0640 and 0820 talking about a money story and answering emails and tweets. But the time, and occasionally the day, can vary.

e-mail Paul Lewis