Post Office pulls 'extremely popular' inflation-linked bond

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Savers who want to beat inflation are fast running out of options, as the Post Office has pulled its inflation-linked bond.

The product is now closed to new applicants due to "extremely strong demand" from savers keen to protect the value of their money.

The official Retail Price Index (RPI) dropped slightly in October, but at 5%, it is still 3% higher than the Bank of England's target for inflation.

The Post Office's inflation-linked bond was, therefore, a natural choice for downtrodden savers, particularly after the withdrawal of NS&I inflation-linked certificates just three months after going on sale in June.

One drawback to the Post Office product was that returns were taxed, unlike the NS&I products. Once tax is deducted from returns, many savers could still be left behind inflation, as we discussed last month.

But it was surely a no-brainer for pensioners and other non-tax payers, paying 1% over RPI for five years.

The only product left on the market that offers a link to the RPI figure plus a certain amount of interest is the Birmingham Midshires (BM) Inflation bond, paying a less impressive 0.5% above inflation.

There are other so-called "inflation-linked" plans on the market - providers include Santander, Legal &General and Yorkshire - but these are quite different. They are "structured" investment products; the returns are determined by the difference between the absolute RPI figure today and the RPI figure when the plans mature (either five or six years down the line).

So savers must be prepared to lock up their funds and be confident that RPI will continue to rise for the foreseeable future.