NS&I’s ‘Pensioner Bonds’ went on sale this morning, offering marketing-leading savings rates to over-65s.
The bonds are aimed at anyone aged 65 or over wishing to fix their savings for one or three years.
You can invest up to £10,000 either by yourself or jointly with one other person aged 65 or over.
You can apply for the bonds now by via the NS&I website, by post or over the telephone. A minimum of £500 must be invested.
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Pensioner Bonds – rates and limits
The one-year bond pays an annual interest rate of 2.8% (2.24% after basic-rate tax), while the three-year bond pays an impressive 4% (3.2% after basic-rate tax).
This means pensioners can benefit from much higher rates compared to those offered on equivalent tax-free fixed cash Isa deals (1.7% and 2.15% respectively). The best rate one-year and three-year taxable fixed-term bonds pay 1.4% and 2% after basic-rate tax.
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.
It’s also worth noting that in order to get the full return from your bond, you will need to keep your money invested for the full term (either one or three years).
If you should need to access all or part of your money early, you will incur a penalty – the equivalent to 90 days’ interest on the amount you take out.
Be aware that if you withdraw all of your investment within 90 days of investing, you will get back less than the original investment.
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.
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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 declare this 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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