Spotlight On: Tesco's RPI-linked bond

The deal

Tesco Bank has issued a retail corporate bond that promises an RPI-linked return, plus 1 per cent to 2019.

Good points

The Retail Prices Index – the traditional method of measuring inflation – currently stands at 5.4 per cent, so initially the offer looks promising. The bonds can be held in a ISA, so returns are tax-free.

Bad points

This is not a savings account, it's a bond, so you have no protection under the Financial Services Compensation Scheme. The bond is tradeable on the Stock Exchange, which means its value will fluctuate.

Conclusion

Inflation looks set to fall, so linking to RPI may not prove to be the best policy at the moment.It's also important understand the difference between savings accounts and corporate bonds: your money is at risk with the latter if the issuer goes bust.