'No risk' in inflation-linked deposit account designed by Hobbs
Published 05/07/2011 | 05:00
THE first ever inflation-linked deposit account has been launched. The new bond has been designed by TV celebrity Eddie Hobbs and is being provided by Bank of Ireland.
The bond will pay double the inflation rate over five years.
It could be used as a "hedge" for homeowners with tracker mortgages who are facing higher costs, Mr Hobbs said.
The European Central Bank is set to hike its key rate by another 0.25pc on Thursday in a move that will add an additional €15 to the monthly repayments on every €100,000 borrowed.
The new 'Double Inflation Bond' has a €10,000 minimum investment, with no limit. The downside is that the money has to be invested for five years.
Mr Hobbs said the capital invested in the bond will be state guaranteed as part of the Eligible Liabilities Guarantee.
"There is no voodoo, no counter party risk. The risk for Bank of Ireland and their guarantee is covered for the term by the sovereign. It's all very simple from a punter's perspective," the personal finance guru said.
The inflation rate used will be the EU rate produced by Eurostat, which is currently 2.7pc.
If inflation continues at 2.7pc a year, then those who invest in the bond will get a return of 5.4pc a year over the five-year term.
If inflation falls below 0pc, then investors will get all their capital back.
Mr Hobbs has long been warning about the risk to savers from inflation.
"I have been beating the drum on a high inflation cycle looming for some time.
"I designed this very simple product to fill a yawning gap in the market and collaborated with the Mount Street Group and Bank of Ireland," said Mr Hobbs.
"The result is a very unique guarantee that would never otherwise become available except for the unique circumstances which Bank of Ireland finds itself in. It is suitable for any person concerned about inflation losses on deposit accounts. It is also likely to attract attention from pension funds big and small," he added.
Mr Hobbs said the bond was not suitable for investors who require regular income or access to their capital within the five-year term or who need to clear debts.
The latest date for the receipt of applications is July 29.