Everyone's talking about the Pensioner Bond at the moment, and with good reason! Boasting impressive rates of interest in a highly subdued market, everyone wants to know how they can benefit. Here's what we know so far…
What are the Pensioner Bonds?
Technically, "Pensioner Bond" is just a name given by the media to these new accounts. The actual name is yet to be confirmed, as is the exact launch date, but the bonds will be available through NS&I in January 2015 for a limited period (a maximum of £10bn can be invested before the bonds are closed to new applicants).
The bonds are for fixed-term, lump sum investments, and will be available for terms of one or three years. They're designed to be held for the whole term – withdrawals and further additions won't be permitted, but the bonds can be cashed in earlier should you wish, although this will result in a penalty of 90 days' interest.
What are the rates?
You may have heard that these bonds will offer market-leading rates, and that's definitely true. The one-year bond will pay a gross rate of 2.8% while the three-year version will offer 4%, far more than anything else currently available – the top one-year bond on the market boasts a rate of 1.90%, while the best three-year fix pays 2.51%, both far less than the one-year Pensioner Bond.
It's a simple answer – anyone aged 65 or over can invest in these bonds.
How much can I invest?
Each bond has a maximum investment limit of £10,000 and must be opened with a minimum of £500. You can hold one of each account – a one-year and a three-year – should you wish, so the overall investment allowance is £20,000 per person.
Can I have a joint account?
Yes, but this will count towards your individual limits. In other words, a couple can still only hold £40,000 between them, based on £20,000 per person – so you can't open two accounts each, then open another of each account jointly.
Can I get monthly interest?
Unfortunately, you can't. This is one of the clear downsides of the bonds, as pensioners often rely on receiving monthly interest as a valuable supplement to their income, so it came as quite a blow to be told that this wouldn't be the case.
When will I receive my interest payments?
The bonds should be held until maturity and the rates are guaranteed for the whole term, with interest added on the anniversary of the accounts being opened. The one-year bond will pay out then, while the three-year version will compound the interest before paying out at the end of the term.
Will I be taxed?
Yes – another unfortunate downside! You'll need to pay tax on any interest you receive, based on your marginal rate of income tax, and higher and additional rate taxpayers will need to declare their interest to HMRC. Tax will be automatically deducted and the interest paid net, resulting in a post-tax rate of 2.24% and 3.2% respectively for the one and three-year bonds. However, non-taxpayers, and those eligible to have their interest taxed at the new 0% rate from April 2015, will be able to reclaim the tax.
How can I apply?
You'll be able to apply for the bonds via post, phone or online, BUT it's recommended that you opt for one of the latter two. NS&I has said that they generally allocate funds on a first-come, first-served basis, so those applying by post could be too late – if a savings product is fully subscribed by online and phone applicants, any subsequent postal applications received will be returned.
Given that demand is expected to be so high, and that a maximum of £10bn can be invested before the issues close, it's widely expected that they'll be over-subscribed. It's therefore crucial to be as quick as possible, so the message is clear – apply online! That way you'll have an instant answer and won't be hanging around on the end of a phone line.
How can I make sure I get an account?
There's another thing you can do to maximise your chances of getting a bond – make sure your cash is ready to go! You'll want to keep it in an easy access account for the time being, making sure there aren't any withdrawal restrictions, as that way you can invest in these bonds as soon as the launch date hits. Until then, we'll keep you up to date with any developments so you're at the forefront of proceedings.
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
Sam: 23rd Dec 2014 15:08:00
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