Hi @Gaoler, you are not right to say the 5% bond won’t keep up with inflation. The 5% Dozens bonds have a very good chance to beat the inflation.
First, the Dozens bond interest rate is 5% gross p.a. / 5% AER (Annual Equivalent Rate). When a savings account / Dozens bond pays interest at 5% AER, it doesn’t matter the interest is compound or not. Because 5% AER means that if you put £100 into that account on the first day, and leave it alone for a year, you will be entitled to receive exactly £5 interest in total on the first anniversary, regardless of how is the interest calculated, how often is it paid and to where is it paid.
If you look at other banks’ savings offers closely, you will see many have two headline interest rates. For example, https://uk.virginmoney.com/current-accounts/ shows:
Paying 2.02% AER (2.00% gross per annum variable) on up to £1,000
The reason for that is they pay compound interest, and it’s calculated daily. Therefore 2.00% gross per annual is 2%/365 ~= 0.00548% per day, and compound that over a year will give you: (2%/365+100%)^365-100% ~= 2.02% AER.
In addition to the above, 5% p.a. beats the inflation almost every year in the last nearly 30 years. The Bank of England aims to keep the UK inflation at around 2%, and it’s usually well below 5%. See the ONS data for historical inflation rates here: https://www.ons.gov.uk/economy/inflationandpriceindices