Best alternatives to Pensioner BondsWhich? explores the options for your cash savings
16 December 2014
Pensioner Bonds have been tipped to fly off the shelves when they are made available by National Savings & Investments (NS&I) early next year.
The rates of 2.8% for a one-year bond and 4% for a three-year bond, confirmed on Friday, are far superior to anything else currently being offered in the savings market.
However, these products will only be available to over-65s and there will be a limited supply. What's more, each bond is subject to an investment limit of £10,000.
With this in mind, Which? explores the best alternatives to Pensioner Bonds for your cash savings.
Cash Isas offer tax-free saving, although the best deals currently pale in comparison to Pensioner Bonds, even after tax. The best one-year fixed-rate cash Isa currently available pays just 1.75%, while the best three-year Isa pays only 2.15%.
Cash Isas are subject to an annual investment limit, which stands at £15,000 for the 2014/15 tax year, rising to £15,240 in 2015/16, but most have no limits on the overall amount of cash that can be stored. This means it's ultimately possible to earn tax-free interest on a huge nest-egg by depositing a decent amount of money into your Isa each year.
The Which? Isa comparison tables let you search hundreds of Isas from providers large and small to find a great product based on quality of service as well as cost and benefits.
Which? Money Compare table: Fixed-rate Isas - hundreds of Isas compared
Some current accounts offer interest rates better than pensioner bonds, provided you meet certain conditions. They only pay interest up to a certain limit though.
The Nationwide FlexDirect account, for example, pays 5% interest on balances up to £2,500 for the first 12 months (1% thereafter), as long as you deposit at least £1,000 a month. Other current accounts require you to set up direct debits, online banking, paperless bills etc before they pay interest.
Find out more: Best current accounts if you're in credit - see our tables
A lot of savings accounts have no investment limit attached, but the rates are typically a lot lower than those offered by Pensioner Bonds, and by most cash Isas after tax.
The Which? savings comparison tables let you search hundreds of savings accounts in order to choose a great product based on quality of service as well as cost and benefits.
Which? Money Compare table: Fixed-rate savings accounts - hundreds of savings deals compared
Peer-to-peer lending websites are becoming an increasingly popular form of investing cash savings. By cutting out the middle man, most peer-to-peer sites can offer rates that traditional lenders, including NS&I, will struggle to match. However, there's a bigger risk of losing your money if a borrower fails to repay what you have lent them.
Find out more: Peer-to-peer lending websites - we rate the three most popular lenders
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