Pensioner Bonds Rates Announced

12th December 2014

Finally the rates have been confirmed on the up and coming NS&I (National Savings & Investments) 65 plus bonds dubbed ‘Pensioner Bonds’ by the media. It was announced in the March budget that older savers would be given a boost from January in the form of limited edition fixed rate bonds only available for investors aged 65 and over. It was indicated at that time that the rates would be vastly more competitive than rates currently available and thankfully the Chancellor didn’t disappoint.

Confirmed in a statement at 4pm on Friday, NS&I will launch two bonds, 1 year and 3 year paying 2.80% AER and 4.00% AER respectively. They are available on a minimum of £500, up to a maximum of £10,000 per bond, per person, however investors can hold bonds jointly so a couple could hold up to £40,000 jointly.

These rates are currently way over and above the current best rates on the market and in fact pay 51% more than the average of the top 5 one year, and 61% more than the average of the top 5 three year fixed rates.

At a mere £10,000 maximum per person, per bond, many savers may be disappointed by the amount they can invest and it’s highly likely that many will be left disappointed if they don’t act fast. The government has limited the amount available to £10 billion into the bonds, which is around one million accounts, but to avoid disappointment we suggest that savers act quickly to snap up these excellent rates.

We recognise that savers, especially those that rely on their savings income, have been hit hard over the last couple of years; their monthly income has been dwindling as rates have continued to drop. Unfortunately, although the bonds will pay highly competitive rates of interest, they won’t offer monthly or annual income. The three year bond will see interest compounded annually but not paid out until maturity. However there is no denying that the bonds offer a much needed boost that savers so desperately need.

It’s encouraging that the government has recognised the plight of savers, especially pensioners, but we belieave more needs to be done. Competition in the savings market remains subdued, as providers appear to have little to no desire to raise funding from savers in the form of competitive rates. This won’t be helped by the recent news that the Funding for Lending Scheme has been extended, albeit for SME lending only, for another year.

While these bonds will only be available to over 65s, they may provide some much needed competition for banks and building societies to encourage to them to keep hold on to their existing savers deposits. Nationwide Building Society recently reacted to the impending launch with a warning to George Osborne that the new bonds may hurt bank deposits and affect mortgage lending as a result. From a savers point of view, this could be great news as banks and building societies may potentially improve their own savings rates in response.

The bonds will be available from January with the exact date yet to be announced. In the meantime we will continue to keep a close eye on any developments and will keep all our readers and customers up to date as soon as any new information comes to light.

If you’ve set your money aside for the Pensioner Bonds but are looking for better returns for other funds too, why not give us a call? It’s free on 0800 321 3581 and we’re always happy to help talk through various options to help better your returns.

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