So the launch of the 65 Plus Guaranteed Growth Bonds, otherwise known as “pensioner bonds” has happened, but hurry whilst stocks, as you may have heard the NS&I website has crashed several times under the strain of the demand.
So how do they work?
Provided you are aged 65 plus and are comfortable tying your cash up for 1 or 3 years these pensioner bonds are by far the best savings deals in town.
You can make withdrawals but you will lose 90 days interest: as Martin Lewis points out, even if you opt for the 3 year deal and wish to withdrawal some money after the first year, you will still be better off than investing in the 1 year deal, as the interest penalty does not outweigh the additional interest.
The minimum investment is £500, with a maximum of £10,000 for each bond, so you could invest up to £20,000. If there are 2 of you, you could of course invest this much in each.
You will be able to apply on the internet, over the telephone or by post, but not through the Post Office as you might expect.
You will of course be subject to the usual income tax rates on your interest.
How do they compare?
You will not find anything that comes close to the interest rates payable on these Pensioner Bonds: figures provided by leading website moneycomms.co.uk make interesting reading:
1 Year Virgin Money 1.65% AER– for £10,000 pays £165.00 interest (no tax to pay)
3 Years Post Office 2.10% AER– for £10,000 pays £640 interest (no tax to pay)
Best Savings Bonds
1 Year ICICI Bank 1.85% AER pays £148 interest (after 20% tax £37 deducted)
3 Years Secure Trust 2.51% AER pays £610 interest (after tax £160 deducted)
65 Plus Pensioner Bond
1 Year NS&I Bond pays 2.8% gross AER
3 years NS&I Bond pays 4% gross AER
How long will they be around?
The government has set aside £10bn for this bond, which sounds a lot but when you consider that there are over 11m people who are eligible to appy, only 1m of them will be successful if they all invest the maximum £10,000!
What if interest rates go up?
Both the 1 & 3 year options are fixed for the stated period of time, so no matter what happens to interest rates you will receive this rate.
There has been talk of rates increasing later this year and with a general election in April they are unlikely to rise before then and even if they do increase later in the year it’s expected to be by a modest amount, and therefore we are unlikely to see any new savings products offering rates as good as those on offer by the NS&I.