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.
"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.