Mutual launches account to beat inflation

National Counties Building Society is offering a five-year ISA that pays annual interest of 1 per cent plus the change in inflation as measured by the retail prices index (RPI).

The group is the only savings provider to offer consumers an account with an inflation guarantee after the Government-backed National Savings and Investments pulled all of its index-linked products last month.

The product is open to both new savers and those wanting to transfer money they have built up in ISAs in previous years.

But people must deposit a minimum of 5,100 – the whole of this year's ISA allowance – and they cannot add to the money during the term of the investment or withdraw their cash.

Under the terms of the product they will receive interest of 1 per cent a year plus September's RPI change. If RPI remains at its current rate of 5 per cent this would give an annual return of 5.82 per cent on an AER basis.

Even if RPI becomes negative, as it was for much of 2009, savers will still receive a return of 1 per cent a year.

John Milton, chief executive of National Counties, said: "We wanted to give people the opportunity to protect their funds against inflation.

"We think it is attractive at this time, particularly as National Savings and Investments has withdrawn its products."

The product will be available until September 30, however there is limited availability so it may close sooner if demand is high.

The group, which is based in Epsom in Surrey, and is the UK's 15th largest building society, previously offered an inflation-linked ISA two years ago, and it expects demand for its new product to be strong.

The current combination of high inflation and record low interest rates has left savers struggling to make a real return on their money once tax and inflation are taken into account.