US banks launch inflation-linked products

SunTrust has launched a new certificate of deposit (CD) linked to the consumer price index for US investors seeking shelter from rising inflation, which hit 5.6% in July 2008.

The three-year certificate will pay the yearly change in the index, plus a bonus of 1%, on a monthly basis. The CD will be linked to the Non-Seasonally Adjusted US City Average All Items Consumer Price Index for all Urban Consumers, published by the Bureau of Labour Statistics.

The index is constituted of various components including the prices of food, housing, fuel and transport as well as the cost of doctors and dentists. Principal is 100% capital guaranteed and covered by Federal Deposit Insurance Corp (FDIC) insurance, which covers investors for the first US$100,000 of loss in the case of insolvency of the issuing institution.

JP Morgan has also launched a 100% principal protected note linked to the consumer price index, which offers a supplementary 1.5% to its average change. The note has a life of five years, with interest paid monthly.

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