Pensioner bonds will carry rates of 2.8% for a one-year bond and 4% for a three-year bond, as the government aims to ease pensioner frustration on savings rates.
The bonds and their rates were originally promised in March, and the government has now finally confirmed them.
Age and investment limits
The products are provided by National Savings and Investments (NS&I) and will become available in January to over-65s. As there is only a limited supply of these bonds the market beating rates are expected to attract massive interest. The government estimates about one million people will benefit.
The bonds are subject to an ‘investment limit’ of £10,000 per bond per person – meaning an individual may hold £20,000 across the two products. They can be ordered by post, telephone or online from NS&I. A minimum of £500 must be invested.
Bonds may be held jointly but this will still count towards investors’ individual limits – meaning a couple could hold up to £40,000 jointly.
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Tax to be paid up front
Investing the maximum allowed will yield a return of £280 on a one-year bond before tax. Investing the maximum £10,000 in a three-year bond will earn £1,248 before tax.
Tax is payable on the earnings from the bonds and higher rate taxpayers will need to be declared on a self-assessment tax return. Interest on the bonds is only payable at the end of the bond term, but tax is due annually, meaning higher rate tax payers will pay tax before they receive the earnings. Ordinary rate taxpayers will have 20% tax automatically deducted before the earnings are paid out.
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The exact date the bonds will be issued is not yet known, but customers can sign up to a free email alert from the NS&I website.