Everyone's talking about the Pensioner Bond at the moment, and with good reason! Boasting impressive rates of interest in a highly subdued market, everyone wants to know how they can benefit. Here are a few answers to the most common questions.
Technically, "Pensioner Bond" is just a name given by the media to these new accounts: the official name is 65+ Guaranteed Growth Bond, available from NS&I. They were launched in January and were initially expected to only accept deposits until a £10bn limit had been reached, however it was recently announced that they'd be extended – the bonds will now be available until May, regardless of how much is invested.
The bonds are for fixed-term, lump sum investments, and are available for terms of one or three years. They're designed to be held for the whole term – withdrawals and further additions aren't permitted, but the bonds can be cashed in earlier should you wish, although this will result in a penalty of 90 days' interest.
These bonds have been specifically designed to offer market-leading rates, and they've stuck to that promise. The one-year bond pays a gross rate of 2.8% while the three-year version offers 4%, far more than anything else currently available – the top one-year bond on the market boasts a rate of 1.90%, while the best three-year fix pays 2.70%, both far less than the Pensioner Bond.
It's a simple answer – anyone aged 65 or over can invest in these bonds.
Each bond has a maximum investment limit of £10,000 and must be opened with a minimum of £500. You can hold one of each account – a one-year and a three-year – should you wish, so the overall investment allowance is £20,000 per person.
Yes, but this will count towards your individual limits. In other words, a couple can still only hold £40,000 between them, based on £20,000 per person – so you can't open two accounts each, then open another of each account jointly.
Unfortunately, you can't. This is one of the clear downsides of the bonds, as pensioners often rely on receiving monthly interest as a valuable supplement to their income, so it came as quite a blow to be told that this wouldn't be the case.
The bonds should be held until maturity and the rates are guaranteed for the whole term, with interest added on the anniversary of the accounts being opened. The one-year bond will pay out then, while the three-year version will compound the interest before paying out at the end of the term.
Yes – another unfortunate downside! You'll need to pay tax on any interest you receive, based on your marginal rate of income tax, and higher and additional rate taxpayers will need to declare their interest to HMRC. Tax will be automatically deducted and the interest paid net, resulting in a post-tax rate of 2.24% and 3.2% respectively for the one and three-year bonds. However, non-taxpayers, and those eligible to have their interest taxed at the new 0% rate from April 2015, will be able to reclaim the tax.
You can apply for the bonds via post, phone or online, but it's recommended that you opt for the latter. There've been some reports of applications getting lost in the post and others have found it difficult to get through to NS&I on the phone, so heading online will probably be your best bet – it's quick, simple and you'll get instant confirmation, and you won't be hanging around waiting for the answer.
Despite the investment limit being lifted, this is still a time-limited offer, so you don't want to hang around. As well as applying online, there's another thing you can do to ensure you get your hands on one of these bonds – make sure your cash is ready to go!
Hopefully you'll have your chosen Pensioner Bond savings in an easy access account so they can be re-invested as soon as you apply (just make sure there aren't any withdrawal restrictions), and if you need to give notice to access your funds, set things in motion! You may have until May but you don't want to miss out, so make sure everything is in place to ensure you can benefit from these market-leading bonds.
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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