Spotlight On: Post office's inflation bond

The deal?

The Post Office has launched a new issue of its three and five-year inflation-linked bonds.

Good points?

The three-year bonds pay RPI plus 0.25 per cent. Five-year bonds pay RPI plus 0.5 per cent. The current rate of RPI is 4.8 per cent.

Bad points?

RPI fell from 5.2 to 4.8 per cent in December and it's likely to fall further. Annual returns are based on March's RPI, which could mean getting a much lower rate than you expect.

Conclusion

The risk with the bonds is that returns fall as RPI falls and, as you have to lock your cash away for the whole term, there's nothing you can do about it. Would you be better in a standard account? Possibly. But at least with these deals you know your savings will grow in real terms, which they may not in standard accounts.