New savings deal tied to inflation

A new savings product has been released onto the market which is linked to a rate of inflation.

The five-year bond with BM Savings, which is part of the taxpayer-backed Lloyds Banking Group, has an interest rate which is the same as the Retail Prices Index for the month a year after the account was opened, plus 0.25%.

For example, RPI hit 4.8% in December, so therefore if someone had opened an account in December 2009, they would have an interest rate of 5.05%.

People can save between £500 and £1 million in the bond, rising to £2 million for joint account customers, but they cannot access their money during the five-year period.

Customers can invest in the product between now and March 10, and the bond will have a start date of March 28. People will earn interest of 0.5% for the period between when they open it and the start date.

The product fills a significant gap in the market, as before its launch there were no savings accounts that helped people to beat inflation, after National Savings and Investments withdrew its highly popular products.

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