Spotlight On: BM savings inflation rate bond

The deal

BM Savings, part of the Lloyds Banking Group, is offering to link savings to the Retail Prices Index.

The good points

The account pays RPI +0.25 per cent. With December's RPI standing at 4.8 per cent, that would make returns 5.05 per cent, far better than offered on any other existing five year bonds, outside of tax-free ISAs.

The bad points

You must lock your money away for five years. That means only putting cash in the account you know you won't be needing until at least 2016. Also, while RPI is relatively high right now, it could fall by next January. If it fell to 2 per cent, which is not inconceivable, your return would be just 2.5 per cent, which doesn't look anywhere near as attractive.

Conclusion

The account offers an inflation-hedge which, in short, means your savings will always be increasing in value in real terms. Against that, you have to lock your cash away for five years, during which there may be better returns or better deals around. If you're tempted, you'll need a minimum £500. Find out more at www.BMSavings.com.