Santander launches Inflation Linked Savings Bond
Santander UK has announced a new savings bond designed for people who want to inflation-proof their savings.
The six-year Inflation Linked Savings Bond will pay the percentage rise in the Retail Price Index (RPI) when it matures, on top of the saver’s initial deposit.
Savers can invest between £500 to £2 million in the bond and with the RPI currently standing at 5.2 per cent while the Bank of England base rate has just been held at an historically low level of 0.5% for the 32nd consecutive month, it is likely to be a popular proposition.
However, savers should be aware that there is no guarantee that inflation will continue to outstrip interest rates and the bond will not suit people who do not wish to tie up their money for such a long period.
Santander’s Inflation Linked Savings Bond is a limited offer, so consumers should act quickly to avoid disappointment.
RBS has also launched an inflation-linked bond with a slightly longer term of seven years.
The bond pays two per cent interest plus the RPI inflation rate at the end of the term.
it will trade under a special facility called the Orb (Order Book for Retail Bonds) which has been set up by the London Stock Exchange.
This allows ordinary investors to buy and sell individual corporate bonds which are traditionally only available to institutions.
A disadvantage for cautious investors is that capital value of these bonds can fluctuate and they are not covered by the Financial Services Compensation Scheme (FSCS), so if RBS collapsed investors would lose their money.
The Post Office and Birmingham Midshires also offer products that are tied to the inflation rate.
In related news, Ana Patricia Botín, the UK chief executive of Spain-based Santander is celebrating her first anniversary as head of the bank’s British operations.
She is reported to hope to make Santander UK “become the most profitable bank in the United Kingdom by 2014”.