Interest rate tracking feature poised for future increases

Interest rate tracking feature poised for future increases

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.

 

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