Santander bonds offer guaranteed returns
Santander has developed a duo of index-linked savings bond, one designed to combat inflation and the other to capitalise on stock market growth.
The inflation-linked savings bond will be available to investors over six years, with returns linked to 105 per cent of growth in the retail price index.
The stock market linked savings bond offers returns pegged at 50 per cent of the growth in the FTSE 100 index for either six years, three years and nine months.
Santander said that whatever happens to inflation or markets, investors will receive their money back plus a little extra.
The minimum return would be 17 per cent, or 2.65 per cent, for the inflation-linked bond and either 22 per cent gross, 3.37 per cent AER, or 6 per cent gross, 1.57 per cent AER, for the stock market bond, depending on the length of term.
The inflation-linked bond will return the minimum amount, or £11,700 on an initial investment of £10,000, if the RPI growth was 5 per cent, rising from the initial index level of 242.5 to the final level of 254.6.
The stock market linked savings bond will offer a minimum return of 6 per cent over three years and nine months even if the index falls by 5 per cent from 5351 to 5083. This would mean a return of £600.
Alexia Kilby, head of investments for Santander, said: “Many savers are still worried that the returns they are earning on their money will not keep up with inflation. All our plans offer the certainty of earning at least a minimum interest return, even if their chosen index doesn’t rise over the fixed term.”
Colin Jackson, director of London-based Baronworth Investment Services, said could be a major problem with the products because they cannot be placed in an Isa.
He said: “The appeal of these products somewhat hinges on their tax implications. Your returns will be charged at your income tax rate at maturity so if you’re in a higher tax band that could batter your returns quite badly.”
However he added that the products were well placed to help certain clients to beat the corrosive effects of inflation, which he believes will be here to stay.
He added: “It’s always guesswork but from what I’ve been reading and hearing, inflation is likely to stay high.
“So these products are fairly attractive on the face of it. The minimum returns are better than a lot of similar products out there and you would be covered under the Financial Services Compensation Scheme as well. It could be an option for those who have used up their Isa allowance this year and well worth considering if you’re a non tax-payer.”