Santander jumps into NS&I gap with inflation-linked savings bond

A new inflation-proof savings account has been launched into a market vacated recently by National Savings & Investments.

The Santander Inflation Linked Savings Bond promises to pay the rise in the Retail Price Index (RPI) at the end of a six-year period. For example, if the growth of the RPI was 20 per cent over the six-year term, the saver would receive back 20 per cent on top of their initial deposit. Based on a deposit of £10,000, this would be £12,000. Savers can deposit anything from £500 to a maximum of £2m, but total subscriptions to the bond are limited.

The promise of inflation-proof savings may be attractive to many as at present the RPI stands at 5.2 per cent, nearly 10 times the level of the Bank of England base rate.

What's more, the Santander account is launched just a couple of months after NS&I withdrew its range of inflation-linked bonds.

"I can see this appealing to many," said Andrew Hagger, of Moneynet. "But people need to be aware that although inflation is outstripping interest rates at the moment, that may not always be the case ... It may be best to opt for a shorter-term deal rather than lock in for the longer term and regret it if rates rise."

There are other inflation-proof products available – apart from Santander's – from the Post Office and Birmingham Midshires. Both are pegged to inflation, but also pay a small bonus.