National Grid launches new inflation-linked bond

Pound with graph

In a move to help savers beat soaring inflation - and raise £140 million for the company - National Grid has launched the first inflation-linked retail bond open to the general public.

The 10-year bond will pay an interest rate of 1.25% adjusted to reflect changes in the retail prices index (RPI). Traditionally, these types of bonds are only available to major institutional investors, but National Grid has chosen to capitalise on savers disgruntled by low interest rates.

Strong demand

"There is evidence of strong demand from retail investors for inflation-linked products to protect them from certain effects of inflation, and we hope that this product will address some of that demand," says Malcolm Cooper, global tax and treasury director at National Grid.

Retail bonds are considered higher risk than bank accounts because they are not covered by any depositor guarantee systems to protect deposits if the firm was to go bust. However, National Grid is considered a low-risk business due to its position at the centre of the utility industry with consistent demand for its services.

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Investors should be aware that the minimum investment is £2,000 and if inflation falls over the 10-year period you may not receive any interest although the company will pay back no less than the face value of the bonds – so your capital is only at risk if National Grid goes bust. Interest will be paid twice a year and at the end of the 10 years the capital you receive back will also be adjusted to reflect inflation.

The bonds will be on offer until 29 September and can be purchased through stockbrokers.


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How can I buy one of these bonds

Having missed out on NSAI is this a similar savings bond ie, Rpi linked
and tax free?

Surely an investor still receives interest if inflation falls - but not if deflation occurs during the life of the bond?

It seems they are available only through a Stockbroker - but returns on this 10-year coupon are a little (LOT!??) more complicated than the old NS&I indexed bonds...


No - a lot more complicated and a 10 year coupon. See

no security, no deal.

Obviously not!

The NS&I ones have just been withdrawn - go to their site and register for an alert the next time they're available that's what I did initially and managed to get some savings in there.

I'm going to look at this one; National Grid are a stable organisation, so I might put some money in it. As far as I'm aware the retail bonds are more risky because the business might go bankrupt. You always have to keep that in mind. Not sure if there's anything else that an investor needs to think about with these kind of things, hence the reason for looking around for more information before I go jumping in.

On every 1000 pounds worth of bonds you buy, it costs you 0.045% (45 pounds) in distribution fees to one of the authorised stockbrokers - the only people you can get these bonds through in advance of their listing on the LSE at 6th October 2011.

I calculate that on 1000 pounds, it costs you 45 pounds in fees. If interest is 6.5%, you get 65 pounds, thus a profit of 20 quid after one year. Effectively, in year 1, you get 2% profit. Thus, if you hold the bond for 3 years, a common period of time to hold a fixed rate ISA, and assuming inflation does not fall (a big assumption), then (2% + 6.5% + 6.5%) / 3 = Average 4.67 % over 3 years.

You can get fixed rate ISA for nearly that with ZERO capital risk. This is a BBB rated bond - the same as Bank of Ireland. I'm not so convinced this bond is a good idea, although I was initially excited.

The interest payment on national grid index linked bond imply 6.5 percent i think something is not right here they may be a better buy when people realise
this and sell so the price will drop