A new tax free savings account linked to changes in the Retail Prices Index (RPI) has been launched by a small building society in Surrey.

National Counties Building Society is giving savers the chance to open a five year ISA paying an annual interest of 1% plus the changes in inflation as measured by the RPI. Customers must invest a minimum of £5,100 – the whole of the year’s ISA allowance – and are not permitted to add any further capital to the account or withdraw any money until the term is completed in September 2015.

As well as new savers, people who have previously put money away in other Cash ISAs can transfer these into the National Counties account, benefiting from the only product currently on the market to offer savers an account with an inflation guarantee.

Chief executive of National Counties John Milton said: “We wanted to give people the opportunity to protect their funds against inflation. We think it is attractive at this time, particularly as National Savings and Investments has withdrawn its products”.

If the RPI stays at the current level of five per cent, consumers will receive an annual return of 5.82 per cent and savers will still receive a one per cent return if the RPI becomes negative.

However, customers who close their account before it matures will not receive the RPI related interest.  “This means that the Index Linked Cash ISA is only suitable if you will not need access to the money invested during the term”, said National Savings.

The offer is due to close by September 30th of this year but if demand is high it may end sooner.

The account is very similar to the now withdrawn NS&I Index Linked Certificates as the return is linked to RPI, as it is arranged as a Cash ISA it is also tax free. However unlike NS&I Index Linked Certificates the account has to be kept open for the full five years to fully benefit from the index linking, this was not the case with NS&I who had a three year option.

Click here to visit the National Counties Building Society website.

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