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Tesco Bank, the retail banking arm of the UK’s largest supermarket, has launched a second issue of its popular inflation-linked bonds, providing more options for investors seeking real returns.
The eight-year bond is aimed at retail investors and pays interest twice a year at a 1 per cent annual gross rate adjusted to take account of changes to the Retail Prices Index (RPI).
On maturity, the amount due will be the full value of the bond, plus any overall increase in RPI.
But if the RPI has fallen during the term, the bank has committed to repay the bonds at no less than their full face value.
The launch of the bond, which follows Tesco Bank’s first inflation-linked bond issue this year, comes as options narrow for savers to get an above-inflation return on their investments.
Last week, the Post Office withdrew the third issue of its Inflation Linked Bond citing extremely strong demand from savers.
Earlier in November, independent financial research company Defaqto released research that showed just six, or 0.3 per cent, of the 1,999 savings accounts available gave a real rate of return to basic rate taxpayers based on the Consumer Prices Index (CPI) – and only five savings accounts do so based on RPI.
Defaqto suggested that to get the best available returns, savers needed to review their savings regularly.
“In particular, people should look to use their Isa allowance, and take advantage of introductory bonuses and guaranteed minimum rates on savings accounts,” said David Black, insight analyst for banking with Defaqto.
“Savers might also look at fixed-rate bonds as a way of giving them a higher return over the longer-term, although they would need to be prepared to tie their money up for a fixed period.”
Tesco’s Inflation-Linked Bond can only be bought and sold through stockbrokers or wealth managers with a minimum purchase of £2,000. It can be held within a stocks and shares Individual Savings Account (Isa) or Self Invested Personal Pension (Sipp).
Savers should also note that the Tesco Bank RPI-linked Retail Bond is not covered by the Financial Services Compensation Scheme (FSCS), meaning that if Tesco Bank were to default, or become insolvent, customers might lose some or all of their investment.
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