Inflation-beating fixed-rate bond offered to savers

A new fixed-rate bond was launched recently by Yorkshire Building Society.  The bond, which carries a three year term, boasts a 4 per cent interest rate – well above the current rate of inflation.

The rate offered by Yorkshire BS joins two other savings account offerings at the top of the best-buy tables, matched by nationalised Northern Rock and the Post Office.

The three-year bond returns 3.2 per cent after the basic tax rate is taken into account.  This just beats the official inflation rate as measured by the Bank of England’s Consumer Prices Index.  As of November of this year, the CPI stood at 3.1 per cent.

This is a crucial point for savers as the return on their investment will outstrip the erosion brought about by inflation. As long as the average price paid for consumables such as fuel, food, and clothes continues to grow at 3.1 per cent or less over the term of the bond, savers will come out ahead of the game.

Unfortunately taxpayers at a higher rate will only see a yearly return rate of 2.49 per cent.

However there are limitations to the new offering.  The minimum balance required to open the account is £1,000, but Yorkshire BS is making the new fixed-rate bond available to both its new and its existing customers.

The new bond from the building society may be taken out over the Internet, via phone, or by walking into the nearest Yorkshire branch.

Industry insiders are quick to point out that those looking to grow their money may find longer-term fixed rate bonds currently on the market.  Recommendations have been made to diversify investments between fixed-rate bonds – which lock a saver’s money away for anywhere from one to five years – and instant access accounts.  This is to ensure that savers can easily move their cash to a different offering if the current BoE base rate changes in the near future.

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