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Yorkshire BS PCA Inflation Linked 2 Plan

Savings Account (Cash ISA)
Published 23 March 2011
Helpful? 7
Open Quote This could have been a hot product but greed appears to have gotten in the way. Basic rate taxpayers may still be better off opting for a taxable inflation-linked plan elsewhere.End Quote
Thumbs Up
  • Available within a cash ISA.
  • A guaranteed way for taxpayers to beat inflation over 5 years.
Thumbs Down
  • Inflation measured over whole period, not locked in annually.
  • Stingy interest bonus.
  • Your money is tied up for 5 years.
Candid Rating
Candid Charges





Unspecified penalty


£100+VAT ISA transfer fee before maturity

Unlike the other inflation-linked savings accounts currently on the market, this one can be held within a  cash ISA. But while that should make the Yorkshire BS Protected Capital Account Inflation Linked 2 Plan the best thing since sliced bread for those worried about inflation, it sadly falls some way short.

The account runs for 5 years and guarantees a minimum return of 1.5% over the whole period, equal to just 0.29% a year. You'll also receive a return based on any rise in inflation (measured by the Retail Price Index) but, unlike the other accounts, inflation is measured  over the whole 5 years rather than each year. This is a distinct disadvantage if we experience sustained negative inflation.

To give an extreme example, suppose inflation rises by 5% in each of the next 2 years then falls by just over 3% in each of the following 3 years. The Yorkshire BS plan inflation-linked return would be pretty much nothing, as RPI at the end of year 5 is more or less where it started in year 1. Whereas an account which locks in inflationary returns each year would return an overall inflation link of 10%.

Linking returns to inflation in this way is far more advantageous to Yorkshire BS than customers. Why is the plan so stingy? Well, for starters, it's run by Credit Suisse who pay Yorkshire BS a sales commission of up to 4%. Add in Credit Suisse's margin and this plan needs a lot of fat on the bone to keep the bankers happy, that means lower potential returns for customers.

The fact it's run by Credit Suisse also adds an extra layer of risk, as if Credit Suisse can't afford to pay the promised return the plan could fail. It's covered up to £85,000 per person via the Financial Services Compensation Scheme (FSCS), but be aware of the 'counterparty'  risk if you plan to invest more than this.

If you want to withdraw your money before maturity then you'll be hit with an unspecified penalty and a £100 & VAT fee if you're also transferring the ISA.

Despite these downsides, is the plan a good hedge against inflation? For taxpayers the fact it can be held within a cash ISA is a boon, as this ensures inflation beating returns. However, the method of inflation-linking is disadvantageous if we experience sustained negative inflation (i.e. deflation) and the extra interest paid is negligible.

If annual inflation averages 3% over the next 5 years this plan should return 3% x 5 + 1.5% = 16.5% (it'll actually be slightly more due to compounding of inflation, but let's not confuse things).

An account paying inflation plus 1.5% a year would return (3% + 1.5%) x 5 = 22.5%, equal to 18% for basic rate taxpayers and 13.5% for higher rate taxpayers.

So in general a basic rate taxpayer would still probably be better off using a plan like those offered by BM Savings and the Post Office, despite them being unavailable within a cash ISA hence taxable.

In conclusion, Yorkshire BS could have had a hot product on their hands, but greed appears to have gotten in the way - reducing the appeal of this plan for most savers.

Web Link: http://www.ybs.co.uk/investment/pca/pca-inflation-tracker2.html?int_cmp=pca11_btmLeftTextPromo_feb11

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