Spotlight On: Santander RPI-linked bond

The deal

Santander has launched issue 8 of its Inflation Linked Savings Bond which pays 105 per cent of the growth in the Retail Prices Index.

The good points

The bond could help ensure the real value of your savings will not be eroded by inflation. Santander is also offering a minimum return over five and half years of 18 per cent, which works out at 3.06 per cent AER.

The bad points

You have to lock your cash away for five and a half years. The way returns are calculated is complicated.

Conclusion

Inflation-beating returns are attractive when interest rates are at record lows. But economists predict that the RPI will start to fall quite dramatically next year, which could quickly leave the returns on the bond looking much less attractive.