New pensioner bonds from NS&I paying up to 4% interest now on sale

15th January 2015

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National Savings & Investment (NS&I) has today launched a range of savings products aimed at those aged 65 and over – and given that they pay up to 4% in interest, they are expected to “sell like hotcakes”.

So-called pensioner bonds, were first announced by Chancellor George Osborne in his Budget speech last March.

Labelled the NS&I 65+ Guaranteed Growth Bonds, the one-year product pays an annual interest rate of 2.8% before tax, and the three-year bond pays 4% before tax.

As the market stands the best one-year bond on the open market is currently paying 1.85% and the best three-year offering is set at 2.5%, so the NS&I bonds do represent an attractive proposition for cash savers.

The three-year pensioner bond paying 4% per annum translates to 3.2% per annum for a basic rate taxpayer, 2.4% for a higher rate tax payer and 2.2% for an additional rate taxpayer. The one-year bond paying 2.8% per annum translates to 2.24% per annum for a basic rate taxpayer, 1.68% for a higher rate tax payer and 1.54% for an additional rate taxpayer

Commenting on the launch Danny Cox, chartered financial planner, at Hargreaves Lansdown said: “Now that a rise in interest rates looks even less likely this year, these new bonds look even more attractive and I expect them to sell like hotcakes. The one-year in particular is a no brainer.

“Back in 2011 the popular NS&I index-linked certificates sold £5bn in four months before being closed.”

Patrick Connolly, certified financial planner, at Chase de Vere also expects demand to be huge. “While NS&I expects them to be available for ‘months rather than weeks’ we would still encourage savers to act sooner rather than later,” he added.

However, Connolly asserted that while these bonds offer market leading rates, they are far from being the cash panacea which some might suggest. He explained: “These products cannot be held within a tax-free cash ISA and don’t pay regular income.

“Despite these downsides, they do offer stand-out rates and complete security and so we will be advocating Pensioner Bonds to many of our clients who are able to lock their money away and want to achieve a better return on their cash savings.

Commenting on the launch, Osborne said: “A key part of our long term economic plan is to support savers and boost hardworking people’s financial security at all stages of life.

“These bonds will give hundreds of thousands of older savers the certainty and comfort of a good return over the life of their investment.”

Jane Platt, chief executive at NS&I, added: “We’re really pleased to be starting the New Year by offering the 65+ Bonds to support older savers.

“We expect these Bonds to be on sale for months not weeks and would like to reassure savers that there is no need to rush to invest.  We would also encourage savers to apply online. This should be the quickest and easiest way to invest and will provide immediate assurance that an application has been received.”

Investment is capped at £10,000 in each bond, meaning individual savers can put away a maximum of £20,000.

Further details on the bonds can be found at the NS&I website.

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