Bank boost for Bond interest-tracking feature

Bank boost for Bond interest-tracking feature

Today’s news of changes on the Bank of England’s Monetary Policy Committee once again puts base rate in the spotlight, writes REAL director Alan Bate.

Kristin Forbes, one of the nine rate-setters on the MPC is departing at the end of June.  Only last week, Ms Forbes gave a strong signal that she is on the verge of voting to increase interest rates due to the UK economy’s robust performance since the Brexit vote and the growing risk of significant inflation.  “In my view, if the real economy remains solid and the pick-up in the nominal data continues, this could soon suggest an increase in the bank rate,” she said during a speech in Leeds.

Lock-in now and miss higher interest?

Of course it remains to be seen whether her successor will share her hawkish stance; so where does this leave investors who currently may be worried about locking-in to fixed rates when the chances of base-rate increases appear to be rising?

REAL Income Bonds’ tracking feature provides a potential solution for investors seeking regular income for two to five years.  Income Bonds pay 3.5% per annum above base rate, subject to a minimum 0.5% base rate and a maximum 5% per annum base rate.

REAL Income Bonds track base rate

Even now while base rate is 0.25% the Income Bonds are paying 0.5% + 3.5% = 4% per annum.  If the Bank raises rates above 0.5%, interest payable to our existing and new Income Bond investors will keep pace.  For example if base rate rises to 1%, our investors will receive 1% + 3.5% = 4.5% per annum commencing the month following the base-rate change.

Investors choosing REAL Income Bonds today therefore have the benefit of an attractive interest rate from the outset and the comfort of linkage to future base rate movements.

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