7th December 2015
January marks the first anniversary of the launch of the 65+ Guaranteed Growth Bonds – aka Pensioner Bonds – which means those invested in the one-year fixed version would be wise to start looking for a new home for their cash, Moneyfacts has urged.
It has been estimated that more than a million older savers snapped up the one and three-year bonds paying 2.8% and 4% respectively.
According to calculations by Moneyfacts.co.uk, savers will have earned £280 in interest before tax if the maximum of £10,000 was invested over the one-year term.
However Pensioner Bond savers are very unlikely to find another deal that generates similar returns over the same period.
For example, if £10,000 was invested in the best one-year bond on the market today, paying 2.15%, savers would only earn £215 in interest before tax over the next 12 months.
As the table below shows, savers will have to be prepared to invest in challenger banks to secure the most competitive rates, but even the highest paying deals leave a lot to be desired.
Savers hoping for higher returns will have to invest over longer terms or contemplate peer-to-peer schemes, which are not covered under the Financial Services Compensation Scheme (FSCS).
Rachel Springall, finance expert at Moneyfacts.co.uk, said: “The rates offered stood head and shoulders above those paid by other providers, so NS&I were bombarded by millions of eager savers looking to secure a good home for their money. Sadly, these customers will now have to battle to find decent returns elsewhere when their bond expires.”
“Interest rates on savings are still poor compared with previous years, but it’s clear that challenger banks are vastly improving the savings environment and have subsequently set up home in the Best Buy charts.”
For example, currently leading the one-year fixed bond market is Shawbrook Bank, which has a deal paying 2.15%. Disappointingly, high street brands are less enthusiastic. Nationwide Building Society, for instance, pays just 1.50% on its one-year bond, which is less than some of the best easy access deals.
Springall added: “Preparation is key when coming off a fixed rate deal, so when savers receive their one-month maturity notice from NS&I they should start looking for a new place to invest. January isn’t far off, so bookmarking the best deals and revisiting the Best Buy charts means that savers will be in the best position to secure another year of decent returns. Once they’ve chosen a new account, savers should give NS&I their maturity instructions either online or by post. Phone instructions will not be considered.”