HomeWho is offering the account?
The account is offered by the Kent Reliance Building Society (KRBS) and is only available as a Cash ISA, either for new contributions or transfers in of existing Cash ISAs.
The Inflation Linked Cash ISA is only available from 6th April 2011 to 21st May 2011, however if it is oversubscribed before the closing date it may be withdrawn.
How is interest calculated?
Interest is payable in two parts.
Firstly, you will receive a payment equal to the change in RPI from April 2011 to April 2016.
Secondly you will receive a guaranteed minimum return of 2% gross in addition to any RPI linked payments. This guaranteed minimum payment equates to 0.39% gross AER.
The following table shows some example returns:
Examples of possible returns on £10,000 provided that the Account is held until the Account Maturity Date
| Initial Investment | Fixed Bonus | Growth in RPI | Total Return | On the Account Maturity Date you will receive |
| £10,000 | 2.00% | 30% | 32% | £10,000 initial investment plus £3,200 |
| £10,000 | 2.00% | 0% | 2.00% | £10,000 initial investment plus £200 |
| £10,000 | 2.00% | -30% | 2.00% | £10,000 initial investment plus £200 |
What is RPI?
RPI stands for the Retail Price Index and is measure of the level of prices of goods and services bought by UK households.
The RPI figure is compiled by the ONS (Office for National Statistics) and along with the CPI (Consumer Price Index) is one of the most popular measures if inflation in the UK.
Is interest accumulated to my savings?
Interest will be paid at maturity.
How long do I have to tie my savings up for?
About five years, the account will mature on 21st May 2016.
Can I get access to my savings?
Once you have opened the account you will receive a 14 day cancellation period.
After the 14 day cancellation period has ended you cannot access your investment before the maturity date. You can however transfer your Cash ISA to an alternative provider, should you do this no cancellation fee will be charged, however no interest will be credited to your savings meaning that only the original capital will be transferred.
How do I manage my account?
Accounts are opened by post:
How much can I save?
The maximum new investment which can be made is £5,340, however there is no limit on the amount you can transfer in from an existing Cash ISA.
The minimum amount needed to open the KRBS Inflation Cash ISA is £2,500.
How is the interest taxed?
The account is being offered as a Cash ISA which means the interest you receive is tax free.
How are deposits protected?
The Inflation Linked Bond is provided by the Bank of Ireland. Deposits with the Bank of Ireland are protected by the UK Financial Services Compensation Scheme (FSCS) to the level of £85,000 per person, per institution.
More details about the FSCS can be found at www.fscs.org.uk or by calling them on 0800 678 1100.
What are the advantages of this account?
- The account can be opened as a Cash ISA and will accept transfers in from existing Cash ISAs
- No tax will be payable on the interest you receive
- The return on your savings will be slightly above RPI due to the 2.00% additional bonus
- Deposits with the Bank of Ireland are covered by the FSCS
- Subject to the limits of the FSCS capital is guaranteed
- Interest is paid at maturity, which could be beneficial if you are in a lower tax band in 2016 that now
What are the disadvantages?
- If RPI were to remain unchanged or fall the only interest you would receive would be the 2% fixed bonus, this equates to 0.39% gross AER, which is uncompetitive compared to other savings accounts which require a five year commitment of your savings
- The account is only available as a Cash ISA meaning that the maximum you can invest is relatively low at £5,340, unless of course you have existing Cash ISAs to transfer in
- The 2.00% rate of interest payable above inflation is uncompetitive compared to other accounts offered by rivals to KRBS
- Early access to your savings is not allowed and if you transfer your Inflation Linked Cash ISA to an alternative provider you will receive no interest
- You may get a better rate of interest from alternative savings accounts
The Investment Sense verdict
Savings accounts with returns linked to RPI seem to be becoming more popular, we are seeing new launches almost every week now and in the budget the government have trailed the relaunch of National Savings & Investments Index Linked Bonds.
This latest offering from KRBS is unusual as it is available to Cash ISA investors. For savers looking to use their Cash ISA allowance and wanting to peg their interest rate to RPI this new account is attractive.
However, the fact it is available as a Cash ISA is the redeeming feature of this account, as the additional fixed rate of interest above RPI compares unfavourably with other RPI linked accounts
Should you wish to discuss this account, or other ways of getting a real, above inflation, return on your savings, speak to one of our team of advisers today. They can be contacted on 0115 933 8433, 0845 078 7774 or by sending an email to info@investmentsense.co.uk.
