Leeds Building Society will tomorrow launch a brand new Inflation Buster Bond after customers requested that the savings scheme be reintroduced.
The Bond is guaranteed to beat inflation by 3.00% plus any early investment, prior to the official strike date on 1 December 2007, will receive interest equivalent to the Bank of England Base Rate credited on 30 November.
Paul Riley, Head of Group Treasury comments: "The demand from customers for this bond has been overwhelming and, as a result, we are now launching a third issue. The annual change in RPI was 4.1% in August, which is an increase on the previous month. This product provides excellent peace of mind with the inflation link, so no matter what happens; customers will receive a guaranteed real return.”
The return is linked to the Retail Price Index (RPI), the official Bank of England measure of changes in the price of everyday goods and services such as food, clothing, education and child care, council tax, heating and lighting and mortgage interest payments.
The inflation rate is the percentage difference between RPI on two dates meaning that if the RPI in August is 207.30 and the following August is 215.74, then the percentage change in RPI and the inflation rate over the period is 4.07%. It would then follow that the inflation would be 4.07% and the Buster Bond would pay a return of 7.07%.
In layman’s terms, the bond-holder is paid the percentage change in RPI plus a guaranteed 3% on top. For example, if the rate of inflation is 4.07% a year over the term, an investment of £20,000 made on 29 August 2007 will have a pre-tax maturity value of £21,554 after two years. This figure comes from a sum of £79 for early investment and £1,475 from the RPI inflation rate.
"The bond is ideal for investors looking for a competitive return and is available on a minimum operating balance of only £1,000. If the Inflation Buster Bond had been available in earlier years, it would have out-performed the average UK savings rate by 1.57% in 2005 and 2.08% in 2006,” adds Riley.
Bonds have been a popular savings scheme in the past as, providing the bond holder waits until maturity, a good return is guaranteed, irrespective of a fall in the base rate or a rise in the inflation rate.
Under the Leed’s bond scheme, there is a minimum investment is £1,000 and a maximum of £1,000,000 or £2,000,000 for joint accounts. In addition, capital withdrawals are not permitted.
Find out more about investment bonds