Spotlight On: Post Office's Inflation-linked bond

The deal

The Post Office's five-year inflation-linked Bond pays the rate of RPI plus 1.5 per cent gross as long as you open the account with at least £500 by 27 April.

The good points

The latest official figures announced this week showed that RPI climbed to 5.5 per cent in February — up from January's figure of 5.1 per cent. On that basis the account looks potentially attractive, as it would pay 7 per cent.

The bad points

The interest rate is based on April's RPI figures and then held at that for the next year. If the inflation measure continues to rise then the returns could prove handsome. But if the rate suddenly drops, it would not be such a good deal. You also have to lock your money away for five years.

Conclusion

If your savings account doesn't beat inflation, you're effectively seeing the real value of your cash shrinking. This account could be a winner then. However, savings rates are unlikely to remain at their low level for the next five years which could mean ending up with a comparatively paltry rate if they start to outstrip inflation, which is entirely possible.