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Pensioner bonds: savings rates set to plummet

Which? looks at some of the best alternatives

Pension bond rates cut

Pensioner bond holders have 30 days to make a decision on their savings

Hundreds of thousands of over-65s who invested in National Savings & Investments pensioner bonds will see their savings rate plummet from today.  

The rate on the one-year 65+ Guaranteed Growth Bonds will fall from a market-leading 2.8% AER to 1.45% AER.  

NS&I is writing to around 470,000 bond holders, giving them 30 days’ notice to consider their options. 

Due to the volume of customers making their decisions at the same time, NS&I will only take maturity instructions online or by post, not over the telephone.

The first bonds are due to mature from today. If you do nothing, you’ll be automatically reinvested for another year into a standard Guaranteed Growth Bond paying 1.45% AER. 

You’re entitled to a 30-day cooling-off period after your bond matures. However, if you miss this deadline, you face a 90-day interest penalty if you want to access your funds.

The Which? Money Compare savings and Isa tables let you search hundreds of savings accounts and Isas from providers large and small to find a great savings rate based on quality of service as well as cost and benefits.

Which? Money Compare table: Fixed-term savings accounts – compare hundreds of deals

Top one-year fixed-rate accounts

Sadly, there are no one-year fixed-rate savings deals that come close to matching the original 2.8% AER paid by the pensioner bond.

You can earn 2.12% AER on a FirstSave 1 Year Bond, but you’ll need to have another product with this provider to be eligible to take out this account.

Aldermore and Bank of Baroda currently offer the best one-year fix not tied to other products in our Which? Money Compare tables, paying 2% AER. 

Alternative NS&I products

All one-year pensioner bond holders can reinvest in one of NS&I’s longer fixed-term bonds available to customers with maturing bonds.

These rates aren’t at the top of the Which? Money Compare tables but they are competitive and 100% backed by the Treasury.

Withdrawals are permitted, subject to a penalty of 90 days interest on the amount cashed in. To illustrate, if you withdrew £5,000 from a £10,000 five-year bond paying 2.55%, you would lose £31.44 in interest.

Rates currently available on NS&I Guaranteed Growth Bonds
Issue Term Interest rate
Issue 57 1 year 1.45% gross/AER
Issue 51 2 years 1.70% gross/AER
Issue 51 3 years 1.90% gross/AER
Issue 47 5 years 2.55% gross/AER

Review your cash Isa savings

With the new personal savings allowance being introduced on April 6 2016, it’s the ideal time to consider the best home for your Isa savings. 

Once this new allowance kicks in, basic-rate taxpayers will have no tax to pay on the first £1,000 of any savings interest. Higher-rate taxpayers will have no tax to pay on the first £500.

Bonds maturing after April 6 2016 will pay interest gross (without tax deducted at source), so these may be a better option for your savings in the next tax year and beyond. 

Cash Isas still have a place as they offer permanent protection against tax, which could be important when interest rates start to rise. 

The Which? Money Compare tables compares hundreds of cash Isas, making it easy to find a great deal. If you’re interested in a stocks and shares Isa instead, watch our short video explaining what to look for.

Get a better return with your bank account

Many current accounts are offering eye-catching rates on positive balances.

The Santander 123 Account pays 3% AER on balances between £3,000 and £20,000, while both TSB and Nationwide pay 5% AER on lower balances.

All three accounts have minimum funding requirements and other stipulations, so check you can meet these before moving your money.  

Many current account providers have recently launched improved switching incentives to entice new customers too. Our round-up of these incentives can help you find the best deal.  

More on this…

Which Ltd is an Introducer Appointed Representative of Which? Financial Services Ltd, which is authorised and regulated by the Financial Conduct Authority. Which? Mortgage Advisers, Which? Insurance Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.

Please note that the information in this article is for information purposes only and does not constitute advice. Please refer to the particular terms & conditions of a provider before committing to any financial products.

Categories: Money, Savings & Isas

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