A Financial Expert’s Guide to Pensioner Bonds
Over the best part of the past decade savers have struggled to find savings accounts that offered anywhere near the interest rates that were enjoyed previous to the credit crunch. To address this the government has created a new savings product, known as pensioner bonds, and here we introduce you to what they may mean for you and how you can make the most out of them.
What are pensioner bonds?
Pensioner bonds are, in the most basic terms, special savings rates for the over 65s in the UK. These are still in relative infancy with the Government only announcing this new scheme in December 2014. These bonds will come in two formats: one year bonds and three year bonds, and will be operated by NS & I (who are the Government’s official savings arm).
How much can you save in a pensioner bond?
There is a maximum on the amount that you can save in each type of bond of £10,000 (each person can however have one of each bond, meaning that every pensioner has a £20,000 allowance, or £40,000 per couple).
Is there a minimum that you need to save?
There is a minimum that you’ll need to open a pensioner bond and currently this limit is set at £500.
Can you withdraw from a pensioner bond?
Yes, you can withdraw money from the account early, however this must be the whole amount and you’ll additionally pay a pretty signification 90 days’ worth of interest as a penalty.
Applying for a pensioner bond
Applying for pensioner bonds is easy; you can either phone NS & I directly or apply by post. You should however note that this is a limited deal, with only £10 billion worth of bonds available and so you may wish to opt for a telephone application rather than post to ensure that you don’t miss out.
How is interest paid?
Many savings products that are primarily aimed towards the older and pensioner markets have the option of receiving the interest on a monthly basis; pensioner bonds however only pay out on maturity (this applies to both the one year and three year bond).
Pensioner Bonds versus ISAs
Another savings move made by the Government in 2014 was to increase the cash ISA allowance of each person to a record breaking £15,000. This then begs the question as to whether pensioner bonds are favourable over Cash ISAs.
As a general answer to this, it really depends upon whether you’re likely to need the money at short notice. This is because Pensioner bonds offer a higher interest rate, depending on the ISA provider sometimes considerably so. If you’re likely to require access to your balance however a Cash ISA will be preferable.