New inflation beater bond from Leeds

Lisa Taylor, analyst at Moneyfacts.co.uk, comments: “With fixed rate bonds hitting new highs on an almost daily basis, the new Inflation Beater Bond from Leeds takes this to a new level, both in terms of rate and innovative product design.

“Until the bond opens on 1st September any saver will receive a return equal to base rate. Then the rate reverts to RPI plus 3%, so assuming inflation remains at a similar level to today, savers could initially bag themselves an impressive 7.4% before tax.

“But, whilst the margin above RPI is fixed there is some uncertainty, as the interest rate you’ll receive for the whole of year one is based on RPI as at May 08 plus 3% and for year two is based on RPI as of May 09 plus 3%. Whilst inflation has fallen slightly, CPI is still above the MPCs target figure of 2%, so if market analysts are correct it’s more likely that your rate will fall, rather than rise.

“The bond requires a minimum of £1K deposit and additional contributions can be made while the issue remains open.

“While the headline rates looks attractive, you must remember you are taking a gamble on the unknown rate you will receive. If you are looking for a fixed rate of return for the two-year period, then perhaps the current Moneyfacts.co.uk best buy from Halifax at 6.63% gross may prove more attractive.”