Inflation-tied bond is back for investors

INDEX-LINKED bonds are being brought back, giving investors the chance to capitalise on the soaring rate of inflation.

National Savings and Investments (NS&I) has reintroduced a bond linked to the retail price index (RPI) rate of inflation.

The five-year product allows savers to invest up to £15,000 tax free, with an interest rate of 0.5 per cent above Retail Price Inflation (RPI). At today’s inflation rate it would offer a 5.8 per cent return.

Chancellor George Osborne has increased the net financing target for NS&I by £2bn, paving the way for it to reintroduce its RPI-linked bond.

NS&I’s previous index-linked bond was taken off the market in July 2010 due to high demand.

Low interest rates have hit Britons wanting to stockpile cash, and inflation has hit consumer spending power, heaping pressure on Bank of England governor Mervyn King (pictured) to hike the base rate.

The Bank’s monetary policy committee opted to keep rates at the record 0.5 per cent low last week for the twenty-fifth month in a row.

Head of banking at Kevin Mountford said:

“Locking away money can be a great way for savers to generate some extra bang for their buck, but the decision shouldn’t be taken lightly and there could be alternatives depending on their financial circumstances and commitments, so consumers should shop around for the best product to suit their needs.”