Posted on December 15th, 2014 | Categories - News
The interest rates on Pensioner Bonds have finally been announced and if you are a saver aged over 65, they will certainly put a smile on your face.
The Pensioner Bonds will be offered by National Savings & Investments (NS&I) and were initially announced in the Budget earlier this year, but the interest rates have only just been revealed.
What are the interest rates on Pensioner Bonds?
Two bonds will be available, with fixed rate terms of one and three years; anyone aged 65 or over can apply for the accounts.
The one year Pensioner Bond will pay an interest rate of 2.8%, whilst the three year bond will pay 4%.
The interest from the Pensioner Bonds will be taxable. Non-taxpaying savers will not be able to apply for the interest to be paid gross, without the deduction of tax, but can reclaim any tax paid by completing an R40 form.
Savers will be able to put a maximum of £10,000 in to each account, which will be available in January, although the exact date has not been announced.
How can you open a Pensioner Bond?
The bonds are sold by NS&I and will be available online by visiting www.nsandi.com or by calling 0500 007 007.
Savers will not be able to open the bonds at the Post Office.
How good are the rates?
In two words: very good!
The table below shows how the rates compare to traditional savings accounts and Cash ISAs (Individual Savings Accounts) where the interest is tax-free.
Account Interest rate Effective interest rate after 20% tax is deducted Effective interest rate after 40% tax is deducted
Pensioner Bond - 1 year 2.80% 2.24% 1.68%
Best ISA alternative: Punjab National Bank 1.90% 1.90% (no tax is deducted) 1.90% (no tax is deducted)
Best savings account alternative: Punjab National Bank 2.00% 1.60% 1.20%
Pensioner Bond - 3 years 4.00% 3.20% 2.40%
Best ISA alternative: Virgin Money 2.15% 2.15% (no tax is deducted) 2.15% (no tax is deducted)
Best savings account alternative: Punjab National Bank 2.55% 2.04% 1.53%
Effective interest rate after 20% tax is deducted
Effective interest rate after 40% tax is deducted
The Pensioner Bonds beat traditional savings accounts hands down over both one and three year terms.
However, if you are a basic rate tax-payer both the one and three year fixed rate bonds beat the best Cash ISAs; even after tax has been paid. For higher rate tax-payers the one year Pensioner Bond can be beaten by the best Cash ISA, but over three years the Pensioner Bond wins, even after tax has been paid.
Three things to watch out for
Whilst the interest rates are market leading, there are catches with the Pensioner Bonds:
Buy whilst stocks last NS&I can only allow £10 billion to be invested in to Pensioner Bonds and accounts will be opened on a first come first served basis. The rates are so good there is a possibility that those pensioners who delay their application might be left disappointed.
Wait for your interest Savers will have to wait until the bonds mature to receive their interest, there is no option to have it paid monthly.
Penalties for early access Unlike many fixed rate bonds, savers will be able to get access to their cash, but at a cost. Anyone breaking their fixed rate term will have to pay an interest penalty of 90 days; equivalent to £100 if the maximum amount is paid in to the three year bond.
Questions? Queries? We’re here to help
If you have any questions or queries about the new bonds get in touch with us today, we’re here to help.
Call us on 0115 933 8433 or email email@example.com