Pensioner bonds took in £1 billion in just two days when they were launched last month – but despite their popularity, savings provider National Savings & Investments says the bonds are still open to new customers.
The fixed-rate savings bonds are among the best paying on the market, and were launched to make up for the paltry returns savers currently receive on cash. The elderly in particular have been hit hard by falling interest rates, as many rely on interest to provide them an income in retirement.
The three year bond pays an annual interest rate of 4%, and the one year bond pays 2.8%. There is a minimum deposit of £500 and a maximum of £10,000.
The Chancellor George Osborne announced in last March’s Budget that NS&I, which is the Government’s funding arm launch a “a choice of fixed-rate market leading savings bonds for people aged 65 or over, taxed in line with other savings income”.
NS&I is not run on sales targets like ordinary banks and building societies, but instead is set an annual Net Financing Target by the Treasury which governs how much money it raises each year. The Net Financing Target is based on a balance of the interests of savers, the wider financial services industry and taxpayers. When this target is met, products are closed. The target for the pensioner bonds – or 65+ Guaranteed Growth Bonds as they are accurately named – is £10 billion.
Anna Bowes of SavingsChampion.co.uk said that the bonds were welcome respite in a squeezed market.
“These rates are brilliant, head and shoulders above the rest of the market,” she said. “The big high street banks are not offering anything attractive at all for savers, the next best thing after pensioner bonds are from small building societies and foreign banks which have acquired British banking licenses.”
Bowes does highlight that there are draw backs of the bonds however. The bonds are not tax-efficient which means income tax is deducted from the headline rate.
However, many pensioners are non-taxpayers, as they earn less a year than their £10,500 tax-free personal allowance. This means that they have to claim the tax back from HMRC – which is both a headache and means that they lose out on the benefit of compound interest on this tax-deducted amount.
Even taking this into consideration, the three year bond is the best paying of its kind on the market. In fact, the three year bond beats the return on the one year bond – even with the 90 day penalty for withdrawing your cash early. Savers who can’t lock up their money for three years should put their savings in the three year bond, and withdraw it after one year to earn 3% interest.
Bowes advises that those eligible for the bond and looking for the top rate of interest should not delay before applying.
“I expect a large number of pensioners applied for these by post, so many applications have yet to reach NS&I, but will do soon,” she said. “The very popular index-linked bonds that NS&I sold out in four months one year, and these may do the same.”
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