Index linked savings
Index-linked savings accounts are financial products designed to protect your savings from inflation by tying the interest rates they offer to a specific inflation index, such as the Consumer Price Index (CPI). Unlike traditional savings accounts that offer fixed interest rates, index-linked savings accounts adjust their returns based on the performance of whichever index it is linked to.
Index linked savings accounts offer a variable interest rate which is tied to a specific inflation index
These accounts can be particularly attractive during periods of rising inflation, as they can offer higher returns compared to standard savings accounts.
Some types of pensions, bonds and policies can also be index linked
What is index linking?
Simply put, index linking means that a financial product is tied to inflation, specifically an inflation index, such as the Consumer Price Index in the UK. Index linked savings accounts have been available in the past, as well as some policies, bonds and pensions, and these would increase or decrease annually to match the current rate of inflation.
What is an index-linked savings account?
An index linked savings account, also known as an index linked savings certificate, is an inflation-linked bond offered by National Savings and Investments (NS&I). You may also hear the certificates informally referred to as ‘Granny Bonds’, because they were originally only available to savers who were over the retirement age.
The terms offered were typically 2, 3 or 5 years, and the savings certificate was linked to the Retail Price Index with a small additional interest rate on top. These bonds could only be cashed in at maturity, and as of 2010, they were withdrawn from sale.
What does it mean when your pension is index linked?
An index linked pension means that your pension rises in line with inflation. Since 2010 this has been based on the Consumer Price Index, but previously it was linked to the Retail Price Index. This means that the pension is protected from increases in the cost of living. In the UK, teachers and the police typically receive this type of pension.
Is index linked the same as inflation?
Index linked is not the same as inflation, rather, it means it is linked to the rate of inflation, specifically CPI, which is the main inflation measure in the UK. It is calculated by the Office for National Statistics (ONS) and an updated figure is released each month.
What is an example of index linked?
Examples of index linked include the now-defunct NS&I index linked savings certificate, and the Teachers Pension.
Are index linked savings tax free?
Yes, the NS&I Index-linked Savings Certificates were free from UK income tax.