Bonds linked to RPI won't lose value despite falling prices, the savings firm has said.
Holders of index-linked savings products should not be concerned that their investments will fall in value due to general price deflation, National Savings & Investments (NS&I) has said.
According to the government-backed savings firm, annual returns from index-linked bonds will be kept at one percent. Official figures released earlier this week showed that the Retail Price Index (RPI), to which returns from the bonds are linked, dropped from zero to minus 0.4 percent from February to March.
Pre-existing clauses in contracts not only keep returns from three and five-year index-linked bonds at one percent ahead of RPI, but hold returns at one percent for periods where the index drops below this threshold, NS&I affirmed.
This will protect customers from losing money as the economy looks set to enter a period of deflation, or falling prices. The chancellor of the exchequer predicted this week in his Budget speech that RPI will continue falling until bottoming out at minus three percent this September.
Peter Cornish, director of customer offers at NS&I said "Inflation-Beating Savings offer savers the security of knowing that their investment will always be protected from inflation. Even with the current deflation, provided that the [bond] Certificate is held for the whole term, the investment will still receive the full guaranteed compound interest."
NS&I has received record inflows over recent months due to customer concerns over the stability of credit crunch-hit banks.
