Fixed rate bonds going index-linked to fight inflation

Long-term fixed rate bonds have been giving way to index-linked ones in an effort to combat runaway inflation in the UK.

Savers breathed a sigh of relief when several long term high interest savings accounts were recently launched by several financial service providers.  The five-year terms offer security in the face of fluctuating interest rates and fluctuating inflation.

The Post Office’s new bond is linked with the Retail Prices Index as it stands in the April of every year of its term.  The bond carries an additional 1.5 per cent in interest as well.  While returns will be calculated on a yearly basis for the bond, it is only at maturity that savers will be able to collect their funds.  Additional limitations include a £500 minimum deposit, early cash-in penalties, and no compounding interest.  Also no supplementary deposits may be made into the bond.

The Post Office is offering the bond until the 27th of April.  However if it proves to be highly popular the possibility of the bond being withdrawn is high in order to avoid over-subscription.

Yorkshire BS has two index-linked offerings to choose from.  The building society’s Protected Capital Accounts offer either a bond with an end-of-term payout with an interest rate of 1.5 per cent above RPI or an alternative option with yearly income but a much more modest 0.1 per cent bonus rate.

Funds between £3,000 and £85,000 are permitted to be deposited in the bonds.  Yorkshire also allows its bonds to be deposited into an ISA – up to the maximum allowance of £5,100.  Additionally savers will be eligible to transfer up to the maximum from an existing ISA as well.

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