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Will maturing pensioner bond holders be caught by inertia?

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The final pensioner bonds mature next week, marking the end of one of the most popular financial products in history.

NS&I’s 65+ Guaranteed Growth Bonds were launched between January and May 2015. A three-year bond paid interest at 4%, set against interest rates of 0.5%, and were bought by 885,000 people.

They have proved a good choice for savers and were one of the few savings accounts outstripping inflation. However, the ‘rollover’ offering is far lower, at 2.2%. This is still competitive. The top-selling three-year fixed term savings account (from RCI Bank) is paying 2.3% (source: Savings Champion), but investors may want to hunt around for a better option.

Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: “There’s nothing innately wrong with letting the bond roll over; 2.2% over three years isn’t a horribly uncompetitive rate.

“However, if savers are going to make the right decision, they cannot let inertia be the driving force in their savings strategy, because inertia can do as much damage to your savings as it can to your ambitions to get up early and go for a run.

“Savers need to avoid taking the path of least resistance, and focus instead on RATE: Rate, Access, Time and Effectiveness.”

In terms of rates, the rollover bond doesn’t compare unfavourably, but savers should consider whether they want to tie their money up for another three years. Coles said there are some easy access accounts that offer only a limited number of withdrawals in return for a higher rate.

She added that rather than seeing the pot of cash as a single sum of money, savers should consider dividing it up and take a portfolio approach. With this approach, the cash may be spread across short and long-term fixed rates, or even stock market investments.

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