Pensioner Bonds – what you need to know

In early 2015 Pensioner Bonds will be introduced as per the Chancellors promise in the budget of 2014. The exact release date is not yet known.

Savers have suffered from a dramatic fall in interest rates in recent years and the new bonds are an attempt to address this in some way, albeit only for those aged 65 or more.

There will be 2 variants available. One will offer a rate of 2.8% over a year and the other will offer 4% over a period of 3 years.

As ever, with anything that stands out as being a ‘good deal’, there will be a limit on how much can be saved. In this case there will be a maximum of £10,000 per person per term. This means that a maximum of £20,000 per person could be saved in the bonds over the 2 periods. The minimum investment will be £500

The interest on them will be Taxable at the savers normal rate of Income Tax.

The Bonds will be made available through the state-owned savings organisation, NS&I.

The Treasury, which estimates that the scheme will cost the Tax payer £325million, will issue up to £10billion worth of bonds and there is the likelihood that they will be fully subscribed within a matter of months.

Savers must be prepared to tie their money up for a period of 1 or 3 years. Early withdrawal will result in a penalty equivalent to 90 days interest.

Once launched they will be available by post, telephone or online direct from NS&I.

Although not available to everyone, and they won’t be suitable for everyone in the target group, they will help some people to achieve a much higher return than can be obtained using a typical Bank or Building Society account.