Pensioner Bonds were announced in the March 2014 Budget, and were available for a limited time from January 2015. They are no longer on sale, but if you already own some you can check up on the details here.
What are they?
The bonds were available only to people aged 65 or over. They were issued by NS&I, making them a very safe investment for lump sums. You may have a 1-year bond, a 3-year bond or both, with a maximum investment of £10,000 in each (so the most you can invest in total is £20,000). The minimum investment for either bond is £500.
How much interest do they pay?
The interest rates are market-leading:
- A 1-year bond pays 2.8% gross/AER
- A 3-year bond 4% gross/AER
These rates are fixed and guaranteed for the whole term, with interest added on each anniversary.
When can I access the money?
The bonds are intended to be held for the whole term, but you can cash them in early with a penalty equivalent to 90 days’ interest (which you would probably only want to do in an emergency). These means the bonds may be less suitable for those who would prefer investments that provide a monthly income.
What about tax?
The interest on the bonds is taxable. It will be paid net of tax at the basic rate, but those who pay tax at higher rates will have to declare their interest to HMRC and pay the additional tax due. Conversely, non-taxpayers or those eligible for 0% tax will have to claim back the tax from HMRC.
Some questions to ask your financial adviser:
- What is my tax position with regard to the bonds?
- Will the bonds become available again?
- What are the best alternatives if I don't have Pensioner Bonds?