Interest rate tracking feature poised for future increasesrealbondadmin
Today’s announcement by the Bank of England Monetary Policy Committee ends months of speculation about the timing of the first base-rate increase for more than a decade. The rate has risen from 0.25% to 0.5% pa. The previous increase was as long ago as July 2007 when the rate moved from 5.5 to 5.75% pa.
REAL Income Bonds offer investors a base-rate tracking feature. The Bonds’ marginal interest rate of 3.5% tracks any changes in base rate between 0.5% and 5% pa; currently the Bonds pay 0.5% + 3.5% = 4.0% per annum. Investors who are concerned about locking into other fixed-interest products, which could leave them disadvantaged by another base rate rise, will therefore benefit from the tracking feature. Any further BoE base rate increase will trigger a corresponding increase in Income Bond interest, for example if base rate rises to 0.75%, Bond interest will rise to 0.75% + 3.5% = 4.25% per annum.