Post Office launches new issue of inflation linked bond

The Post Office has launched the third issue of its popular Inflation Linked Bond, available to customers from today until Friday 20 January 2012.

The new issue offers a choice of two fixed terms:

Three year term - offers annual RPI inflation rate plus 0.25% gross/0.24% AER fixed each year, paid at maturity

Five year term - offers annual RPI inflation rate plus 1% gross/0.98% AER fixed each year, paid at maturity.

The rate of return is based on the annual Retail Price Index as measured in January each year, plus a guaranteed fixed return of 1% or 0.25% gross per year - ensuring customers' savings are always beating the rate of inflation.  RPI includes the cost of mortgage interest payments and has historically run at a higher level than the Consumer Price Index (CPI) rate.

For example, the annual RPI rate in August 2011 was 5.2%.  If this product had been available the year before (and used August RPI readings as the basis for the return) the annual return for the first year would be 6.2% (5.2% + 1%) for the five year term, or 5.45% (5.2% + 0.25%) for the three year term.

Post Office Director of Savings and Investments, Richard Norman, said: "Since we launched the first Inflation Linked Bond earlier this year, inflation has remained high, leaving savers worried about the value of their hard earned cash.  This new issue of the Inflation Linked Bond offers them another chance to get peace of mind that their savings will be protected against the eroding effects of inflation.

"Our bonds have proved hugely popular in the past, so we urge interested savers to get applications in as quickly as possible.  We will aim to open bonds for as many applicants as we can, but funds are strictly limited and we may need to withdraw the bond before the official closing date if it is oversubscribed."

The bond can be opened with a single deposit of £500 (minimum investment £500 and maximum £1 million) with the return calculated annually and paid at maturity.  No additional deposits are permitted.  The account cannot be accessed until the end of the fixed term.

To find out more about the Post Office Inflation Linked Bond or any other savings product, visit postoffice.co.uk.