Post Office launches new inflation linked savings account

Posted on June 17th, 2011 | Categories - Savings

The Post Office has launched a new inflation linked savings bond designed to compete with the Index Linked Certificates issued by their former partner, National Savings & Investments (NS&I).

The new account can be opened for a three or five year term. It pays interest of 1.5% over RPI (Retail Price Index) for the five year term and 0.5% over RPI for the three year term.

Although the headline rate on the five year account is higher than the NS&I Index Linked Certificates it is subject to tax, meaning that taxpayers would be better off with the NS&I account.

Unlike the NS&I Index Linked Certificates savings in the Post Office account cannot be accessed during the three or five year term except under “exceptional circumstances” and it cannot be guaranteed that capital will be returned in full.

This is the second time the Post Office have launched an Inflation Linked Bond, however this issue has the option to save for three or five years, the original account only offered a five year term.

“The introduction of the new three year term will be particularly attractive to those who are not able to put their money aside for as long as five years,” said Richard Norman, Director of Savings and Investments at the Post Office.

Inflation

Inflation has risen over recent months and both CPI (Consumer Prices Index) and RPI (Retail Prices Index) are both well above the Bank of England’s 2% target.

Understandably savings accounts with interest linked to inflation have become more popular over recent months. However, there is a concern among experts that if inflation falls and interest rates rise, savers who have taken out these accounts and do not have access to their savings will be left not able to take advantage of potentially better rates elsewhere.