What’s new?

The UK Government has announced the rates on its new ‘pensioner bonds’ – 2.8 per cent for one year bonds, 4 per cent for three year bonds. The bonds will be available from January 2015 and will have an investment limit of £10,000 per bond per person. They will be available directly from NS&I by post, phone or online. The minimum investment will be £500.

They say…

George Osborne, Chancellor of the Exchequer, said: “A key part of our long term economic plan is to support savers and boost hardworking peoples’ financial security at all stages of life. That’s why the government is introducing savings bonds for people aged 65 and over, and why we’re confirming today that these bonds will pay the best available interest rates. They will give hundreds of thousands of older savers the certainty and comfort of a good return over the life of their investment.”

Good news?

The investment limits on the bond are generous. A couple can squirrel away £40,000 per year into the bonds, which compares well with isas and pensions. The rates also look pretty good – the top one year fixed rate savings accounts on MoneySavingExpert is First Save, which pays 1.85 per cent. The best three year account is Secure Trust Bank, which pays 2.51 per cent. The bonds are backed by the Treasury and early access is possible, though with a small loss of interest.

Any caveats?

The interest compounds, which can be good because investors receive interest on their interest, but may not suit those who need a regular income. Also, the rates, while high, only just beat inflation and there is no possibility of any further capital growth in the investment. Pensioners may live for another 20-30 years after retirement and having large chunks of their money in cash savings (rather than stocks or bonds) may not give them the income they need.

Links
http://www.nsandi.com/savings-65plus
0500 007 007