Three-year Pensioner Bonds mature soon: your savings options now
Pensioner Bonds, formally known as the 65+ Guaranteed Growth Bonds, were launched on 15 January 2015 by NS&I – the government’s 100% capital protected savings arm.
They paid market-leading rates of 2.8% on the one-year fixed-term offering and 4% for the three-year fixed-term product on deposits between £500 and £10,000.
These rates were far above those offered elsewhere but they were only available to people aged 65+. Initially, £10bn was allocated for the scheme – enough for 500,000 savers. Given their popularity, the availability period was extended to 15 May 2015.
In total, 885,000 people invested more than £8.9bn into the three-year bonds, meaning around £10bn worth will be maturing in the next four months.
If you’re one of the hundreds of thousands of people with the product, it’s time to act. While the interest rates offered on cash savings products elsewhere are no match to the attractive rate of the bonds, there are still a number of options available to you.
The options for Pensioner Bond holders
Holders will receive letters from NS&I around 30 days before the maturity date to explain the options.
Essentially there are three options available to you:
- Do nothing: without any direction from you, NS&I will reinvest your money into its relaunched three-year Guaranteed Growth Bond offering 2.20% gross/AER.
- Reinvest into the Guaranteed Growth Bond: here you will have the option of depositing your money into the one-year (1.50% gross/AER), two-year (1.70% gross/AER) or five-year bond (2.25% gross/AER). NS&I states you need to inform it no later than two working days before your bond matures.
- Cash in your bond: you can cash in all or part of the amount and the money will be transferred to your nominated bank account. Again, NS&I confirms you need to inform it no later than two working days before your bond matures.
Anna Bowes, director at independent savings advice site Savings Champion, says the default 2.20% three-year bond option is a “very competitive rate”, but may not be the option of preference.
Bowes, says: “Savers who have been enjoying 4% per annum are clearly going to be disappointed that on maturity their return will drop by at best over 43%, as the best three-year rate on the open market is paying just 2.25% gross/AER.”
However, she says that as the automatic rollover option is very competitive, it may not be worth moving the maturing money elsewhere for those savers who want to tie up their money for another three years.
The terms of the bonds mean savers can access their funds earlier than at the end of the three-years, though withdrawals are subject to a penalty equivalent to 90 days’ interest.
Cash account alternatives
Below, Savings Champion data compares cash savings accounts with those offered by NS&I:
More or less interest received than expected?
Based on the full £10,000 deposit, savers could earn up to £1,248.64 in interest, however, this amount will vary depending on what rate of tax you pay and the date you opened the Pensioner Bond.
See YourMoney’s Three-Year Pensioner Bond holder? Why it matters when you opened it for more information.
Don’t forget the stockmarket
As pensioners will be aged 68+ on the maturity of the bonds, this shouldn’t stop you from considering the stockmarket.
Older pensioners may not think they have a long enough time horizon to make long-term investments, but Sarah Coles, personal finance analyst at Hargreaves Lansdown says there are a couple of points which could persuade you to reconsider.
“The first is there’s a decent chance you will live longer than you expect. Last year, Public Health England calculated that a 75-year-old man has a life expectancy of a further 12 years, while a 75-year-old woman can expect to live another 13 years.
“The second is that even after your death, investments can be left to your family. They may have to pay inheritance tax, but there’s no requirement to cash them in. These investments could end up being held for decades, so just because someone is in their 70s, 80s, or 90s, it doesn’t have to rule out stockmarket investments.”
She added that while your capital is at risk, if you’re happy to put your money away over the next five to ten years+, “your money has more potential to grow than it would in a savings account, even a very competitive one”.