With inflation as measured by the Consumer Prices Index (CPI) now at 5.2% savers are seeing the real value of their money erode. With the withdrawal of the National Savings and Investments (NS&I) Index Linked Saving Certificates savers have been struggling to find an alternative.
NS&I Index Linked Savings Certificates offer a risk free and tax free way of beating inflation, as measured by the Retail Prices Index or RPI (which is higher than CPI). So what are the alternatives now?
Typically the only way to earn a higher rate of interest from a savings account is to lock your money away for a longer fixed term. Even then the rates available fall woefully short of CPI (5.2%).
However, there are 4 savings bonds available on the market which will provide inflation beating interest rates and the good news is that they can be held in a cash ISA, so returns can be tax-free. Details are given below.
But one word of warning. The bonds below will either restrict access to your capital during the term of the bond or impose penalties if you wish to withdraw your money early. If in the medium term inflation falls as Mervyn King, the Governor of the Bank of England, hopes (to below 2%) and interest rates return to normal (around 5%) then you could find yourself stuck with a deal which isn't as competitive as rates offered on ordinary savings accounts. Something to think about.
|Product name||Interest rate||Minimum Investment||Term|
|Post Office||Post Office Inflation Linked Bond Issue 3||Based on January's annual rate of RPI plus 1.00% gross.Paid at maturityIf RPI is negative or 0% in January then get 1% interest for the year
|Post Office||Post Office Inflation Linked Bond Issue 3||Based on January annual rate of RPI plus 0.25% gross.Paid at maturity
If RPI is negative or 0% in January then get 0.25%% interest for the year
|BM Savings||5 year inflation rate bond (issue 4)||Interest will be based on the October RPI annual inflation rateThe following fixed rate of interest will also be paid yearly0.50% Gross p.a./ AE||£500||5 years|
|BM Savings||3 year inflation rate bond (issue 3)||Interest will be based on the October RPI annual inflation rateThe following fixed rate of interest will also be paid yearly0.25% Gross p.a./ AE||£500||