A fund that matches inflation

by Ed Bowsher on 14 September 2010  |  0 comments
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Returns on savings have been rotten for the last two years. One fund management company thinks it can help.

Returns on savings have been rotten over the last two years. The Bank of England’s base rate has been at a record low and it’s been hard to ensure that the value of your cash keeps up with rising prices.

Until July, the best solution was to take out index-linked certificates from National Savings & Investments. M&G is now attempting to fill the gap with a corporate bond fund that will aim to keep up with inflation. It will invest in inflation-linked corporate bonds as well as derivatives to achieve this performance.

You can find out more in this excellent article by Emma Wall in the Daily Telegraph.

So will I be investing?

No. The reason is I don’t think inflation is set to take off. Yes, I’m worried that inflation is staying stubbornly at 3% and I fear that will trigger base rate rises over the next year. But I very much doubt that inflation is going to soar through the 10% mark.

I’d rather keep my spare cash in shares. I suspect they’ll perform better over the next five years or more.