Post Office launches two inflation-busting accounts

17 June 2011

The Post Office has launched two index-linked savings accounts to help combat the effects of high inflation and low interest rates.

Both the three and five-year bonds are linked to the retail prices index (RPI) of inflation, which currently stands at 5.2%.

Interest is worked out from the average RPI rate every August, plus a guaranteed return of 1.5% on the five-year account and 0.5% on the three-year account.

There is a minimum investment of £500 and a maximum of £1 million and the money cannot be accessed until the end of the fixed term. Additional deposits aren't allowed.

The accounts are available until 2 September but will be withdrawn if over-subscribed and you can apply by telephone, in branch or online.

Long-term savers

Richard Norman, director of savings and investments at the Post Office, says the accounts will be most suited to long-term savers.

"Rising inflation means for many saving is becoming less attractive. We're helping our customers protect their savings from the impact of inflation with our inflation-linked bonds," he says.

Although the accounts will guarantee to beat the level of inflation, Louise Holmes, spokesperson from Moneyfacts, says as the bonds run for either three or five years, if RPI drops during this period savers will receive a lower return than hoped.

The accounts are likely to prove popular but still do not match the recently launched NS&I index-linked savings certificates, which offer tax-free returns (the Post Office bonds are taxable).

There is also a smaller minimum deposit of £100 with the NS&I bond and, unlike the Post Office accounts, it is possible to withdraw your money after one year with NS&I.

"Overall the Post Office bonds are reasonable, but are still some way short of the NS&I offering," says Patrick Connolly, spokesperson for independent financial advisers AWD Chase de Vere.

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