Spotlight On: Post Office Inflation-linked Bonds

The deal

The Post Office has launched a second issue of its Inflation-Linked Bond, available until 2 September 2011.

The good points

Five-year bonds pay RPI plus 1.5 per cent while the three-year bonds pay RPI plus 0.5 per cent. Based on April's 5.2 per cent RPI, returns would be 6.7 per cent and 5.7 per cent.

The bad points

Returns for the year are actually based on August's RPI. If that happens to be much lower, the account could look much less attractive. The account cannot be accessed until the end of the fixed term, which means there's no flexibility.

Conclusion

For those savers who want to get real returns on their cash by beating inflation, these bonds could be perfect. However, they are only suitable if you are prepared to lock your cash away for up to five years. You also can't add cash after the initial investment, so the bonds are only really suitable for a lump sum that you have sitting around that you know you're not going to need for years.