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Alternatives to the Pensioner Bond

Alternatives to the Pensioner Bond

Category: Savings

Updated: 22/01/2015
First Published: 22/01/2015

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

The Pensioner Bond has taken the savings market by storm, with these accounts offering truly market-leading rates to pensioners seeking capital growth. But what if you don't qualify? Or, what if you want to receive a monthly income from your savings, something that these accounts (to the disappointment of many pensioners) don't offer? Well, we've scoured the market to find a few alternatives that could offer the perfect solution to your savings needs.

Best one-year bond

Unfortunately, there's nothing that comes close to the 2.80% offered by the one-year Pensioner Bond, but you can still get a decent return from Al Rayan Bank's Fixed Term Deposit account. Offering a rate of 1.90% from a minimum investment of £1,000, it can be operated via all channels and could be a great home for your money.

Best three-year bond

The top three-year bond that's open to everyone currently comes from Secure Trust Bank, with its Fixed Rate Bond (3 Year Term) paying 2.51% from £1,000. It also allows further additions while the issue remains open, something that the Pensioner Bond doesn't offer, so you could potentially add more cash later down the line if you have extra available.

Best ISA alternatives

The Pensioner Bond isn't tax-free, so after you've taken the typical 20% tax charge off any interest, ISAs could actually be a great alternative and could even come close to matching the level of interest earned from the Pensioner Bond.

Let's do a quick calculation. If you had the one-year Pensioner Bond and put the full £10,000 investment into it, you'd earn £224 in interest after tax (£280 before). The top one-year ISA, Virgin Money's Fixed Cash E-ISA Issue 104, pays a tax-free rate of 1.70%, giving you £170 in interest. It doesn't quite match the Pensioner Bond, but it's not that far off!

And, if you're a higher rate taxpayer, you'd actually be better off with a one-year ISA, as the Virgin account would give you £168 in interest after tax.

The three-year equivalent operates under similar principles – Virgin Money's Fixed Rate Cash E-ISA Issue 98 pays 2.15%, giving you £215 in interest per year, compared with the £320 basic rate taxpayers would receive from the Pensioner Bond and the £240 higher rate taxpayers would get. You may not come out on top, but as far as alternatives go, it's not a bad option.

Best for bigger savings pots

What if you've got more than £20,000 to invest? Each Pensioner Bond has a maximum allowance of £10,000, so even savers who had one of each term could still have money left over in poor-paying accounts.

In that case, it's time to look elsewhere. The top one and three-year bonds mentioned above could again be great options, but have you considered high interest current accounts? Santander's 123 Current Account offers a rate of 3.00% for balances of between £3,000 and £20,000, so it could be a great addition to your savings portfolio. As an added bonus, you don't need to keep your money locked away either – as it's a current account, it could effectively become an easy access account for the same 3.00% rate!

Best for monthly income

If you're craving a regular income from your savings, you'll want to find an account that pays interest monthly. Currently, the best of the bunch comes from Marsden Building Society, with its Branch Saver 120 (Issue 3) offering an annual rate of 1.65%. It pays interest monthly and the rate rises to 1.75% for savings pots of £50,000 and above, so it could provide the ideal income-seeking combination.

Best for higher returns

The 4% rate may sound appealing, but if you've got a slightly higher risk appetite, you could have the potential to earn even more. Stocks & shares ISAs actively invest your savings in the stock market, with the returns you get being based on the performance of the market or the funds you choose, rather than being a set interest rate. This means that the value of your investments could fall as well as rise and you may get back less than you put in, but if you're comfortable with an element of risk, this kind of tax-efficient savings vehicle could be ideal.

What next?

Stocks and shares ISA

Best savings rates

Bank account search

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

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