Pensioner bonds ‘extremely popular’ as savers look to double returns

At a time when rock-bottom interest rates are the norm, savers’ nest eggs have taken blow-after-blow.

This week, the Government lent a helping hand to those aged 65 and over in the form of a £10bn pot for guaranteed-return bonds.

Predictably, following almost six years of squeezed returns, the public has pounced on the promise of market-beating rates.

The so-called ‘pensioner bonds’, which offer up to four per cent interest, were launched on January 15. Provided by National Savings and Investments (NS&I), deals worth £270m were completed through 26,000 sales in less than a day’s trading.

HM Treasury estimated the bonds will help around one million pensioners to boost their retirement cash.

NS&I has said it expects the bonds to be available for a period of months, but financial experts warned that the bonds “could be a case of blink and you’ll miss them”.

The lump sum investments, pay fixed, guaranteed rates and offer savers the choice of either locking their money away for one year or three years.

The deals enable people aged over 65 years old to save up to £10,000 each in a one-year bond paying annual interest of 2.8 per cent and a three-year bond paying a yearly rate of four per cent.

Couples can jointly hold £40,000, assuming that each partner holds £10,000 in a one-year bond and £10,000 in a three-year bond.

The bonds are designed to be held for the whole term. Savers can cash them in early, although they will be hit by a penalty equivalent to 90 days’ interest on the amount cashed in.

Following the bonds’ release, NS&I sought to calm fears that the people could miss out.

A spokeswoman for NS&I said: “This has been an extremely popular launch.

“[There is] a total pot of £10bn, the largest UK retail bond ever, so there’s plenty more available. There are a lot of these popular bonds being sold today.

“But even they are only a small proportion of the overall pot available. So we’d remind customers there’s no need to rush: take your time and decide what’s best for you.”

NS&I is encouraging online applications as the “quickest and easiest way to invest”. But some people were unable to get on to the website immediately after it was announced that the bonds had gone on sale, frustrating investors.

Within hours, there were complaints of people struggling to access the site and get through on the phone as the stampede for the bonds got under way.

The spokeswoman continued: “We continue to take many thousands of sales each hour online and by phone. The majority of sales are coming through our website.

“Because of the unprecedented demand for these bonds, there have been some issues with our website affecting some customers accessing it but we are working hard to correct this..”

The new bonds pay almost double the interest rates that can be found on bonds across the market generally, according to figures from website Moneyfacts.

The average one-year fixed bond on the market today pays just 1.43 per cent, while the typical three-year bond pays 2.03 per cent.

Susan Hannums, director of savings website Savingschampion.co.uk, said: “Our message to any savers wishing to take advantage is to act now to secure these fantastic rates, as it could be a case of blink and you’ll miss them.”

Sarah Pennells, founder of savvywoman.co.uk, said those who do invest in the bonds will “undoubtedly” get a better deal than in an ISA.

However, Ms Pennells said it is unlikely to make up the shortfall pensioners have seen due to low interest rates since 2009, as the limits for investing are “quite low” and it is likely to sell out quickly.

Danny Cox, chartered financial planner at financial services firm Hargreaves Lansdown, said he would be “highly surprised” if the £10bn pot lasts until the new tax year in April.

NS&I, which has more than 25 million customers, offers a range of cash savings and investment products, including premium bonds.

It is backed by the Treasury, meaning any money invested in it has 100 per cent security.

Generally, people who have money saved into a bank or building society in the UK are protected for up to £85,000 if their financial institution goes bust, under the Financial Services Compensation Scheme (FSCS).

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In his March 2014 Budget, Chancellor George Osborne revealed plans for a guaranteed-return investment product for those aged 65 and over.

A £10bn pot has been put aside to fund the NS&I bonds.

The so-called pensioner bond is available in one-year and three-year durations. The products pay 2.8 per cent and four per cent interest respectively.

Applicants must have a minimum of £500 to invest and can hold a maximum of £10,000 in each type of bond.

A couple could hold a total of £40,000 in bonds, if both took the maximum allocation for both the one and three-year options.

Savers must be able to leave their cash invested for the full period of the bond to receive the stated returns. Those who cash-in early will be charged a penalty.

They are available online at www.nsandi.com, by phone on 0500 500 000 or by post.