Sainsbury's plans savings bonds

Supermarket giant Sainsbury's is considering the launch of a savings bond for customers in a move to boost customer loyalty, it has been reported.

Chief executive Justin King is said to have asked the board to examine the plan in detail with a decision on whether to go ahead to be made in the summer, the Mail on Sunday reported.

In March, rival John Lewis launched a £50 million bond that was oversubscribed after 11 days. Its bond, which was targeted at store card holders and staff, paid out 4.5% in cash plus a further 2% in John Lewis vouchers.

Tesco launched a £125 million bond in February open to any investor that paid interest at 5.2%, but closed the scheme after two weeks because demand was so strong.

The move by Sainsbury's, which is said to be looking at raising more than John Lewis, comes as the number of savings accounts that offer a real rate of interest over and above inflation continue to dwindle.

With consumer price inflation, or CPI, at 4.5%, basic rate taxpayers need a savings account that pays interest over 5.6% per year to earn a real return, while higher rate taxpayers need as much as 7.5%.

National Savings recently reintroduced its five year index-linked savings certificates to meet the growing demand for products that protect against inflation. These certificates pay interest equal to the change in the retail price index plus 0.5% and are tax-free.

Sainsbury's declined to comment on the report.

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