While the government’s banking arm recently withdrew its index-linked fixed rate bond earlier in September due to runaway levels of demand, utility group National Grid has stepped up and taken up the slack by offering their own take on a long term savings product.
With the hope that they will be able to tap into the nation’s need for high interest savings accounts, National Grid has launched a bond with a ten year term that tracks inflation and will offer a1.25 per cent interest rate pay out twice a year. The face value of the financial instrument, which, like shares, are bought and sold on the London Stock Exchange, will fluctuate with the inflation rate as measured by the retail prices index, with paid interest moving in sync.
This means that if the RPI remains at its current 5.2 per cent rate, the bond’s face value will rise in accordance, with interest being 1.25 per cent over the inflation rate. With the savings product calculating interest biennially and then compounded, investors could be on the receiving end of greatly increased interest payments if inflation remains elevated.
At the end of the ten year term, savers will be reimbursed their initial investment in addition to their overall inflation-related increase. In the event that inflation has dropped into negative numbers, National Grid will still be paying out at least the original deposit amount at maturation of the bond.
A solid, well-regarded firm, National Grid owns the electricity and gas supply network for the UK, committing billions of pounds in infrastructure investments. A small part of this funding, these new inflation-linked bonds comprise a portion of this funding, are currently on offer, and can be purchased with as little as £2,000.
The utility company has not disclosed their fundraising target, but bonds, which have been quite popular as of late, could end up generating in excess of £125 million.