Lloyds TSB offshoot BM Savings recently announced it was coming to the rescue of downtrodden savers in the UK with the launch of a new inflation-tracking fixed-rate bond.
In a move that mirrors the NS&I savings account offered up until July of last year, the five-year fix will be tied to the Retail Prices Index.
The RPI – which is calculated in the first month of every year – currently stands at 4.8 per cent. BM Savings is adding an additional 0.25 per cent to the interest rate in an effort to maximise returns for savers.
Unlike an ISA savings product, however, the returns are taxable. Basic tax rate payers would only see a 4.04 per cent investment return. Still the rates attached to the Inflation Rate Bond are a leader in the best-buy tables for a five-year fix not counting tax-free ISAs.
The closest rival to BM Savings would be the 4.75 per cent five year fix from Coventry Building Society. After basic rate tax the bond returns 3.8 per cent.
However the bond from BM Savings is only a best buy as long as the inflation rate stays high. Savers who tie their money to the inflation-linked bond could end up losing money should RPI inflation recede over the course of the bond’s term.
BM Savings is offering the bond for a six week period which ends on the 10th of March. However the personal and business bank account provider will only offer 0.5 per cent interest on any deposits until the beginning of the inflation-linked interest, set for the 28th of March.
The bond will only be made available to savers by post or by phone.