“Pensioner Bonds” are back for the over 65s, but for how long? Pensioners have long complained that they have suffered poor returns on their invests since interest rates fell to an all time low and there is little prospect of any improvement in rates this year.
There are 2 options – Pensioner Bonds can be taken out for either a 1 or 3 year fixed term, offering interest rates of 2.8% and 4% gross respectively. These rates are very competitive compared to what is on offer from other financial deposit institutions.
Restrictions – before you decide if Pensioner Bonds are right for you, there are terms that you should be comfortable with before you proceed. Firstly, if you need to have access to your money part way through the fixed term, the returns will suffer a 90 day interest penalty.
Increase in interest rates – Whilst it is unlikely that interest rates will rise in the next year, it is quite possible that rates will rise over the next 3 years. You may find yourself locked into an investment that is paying poor returns.
In addition, even though the interest rates are currently better than most savings accounts, you may be able to achieve higher returns if you’re prepared to invest over the medium to long-term (5 – 10 years). However, with investments other than deposit accounts, there is investment risk which needs to be considered.
Interest is taxable – Investors should be aware that the interest payments are subject to tax at 20% (higher rate and advanced rate tax-payers will have further liability to tax). The returns however are still very competitive relative to alternative options. For non-taxpayers, it is not possible to have the interest paid without deduction of tax and therefore you would have to reclaim any overpaid tax at the end of each tax-year.
Maximum amount you can invest – The maximum amount you can invest per person is no more than £10,000 into each of issue of the Pensioner Bond (i.e. a couple could invest a total of £40,000 between them into the new Bonds).
Pensioner Bonds look very attractive and for many people they will be a very appealing investment option. However you will need to move fast. Pensioner Bonds are likely to only be available for a limited period!
Contact Martin Dodd on 01902 742221 or email him at [email protected] if you would like talk about money issues.
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