31 December 2014

Pensioner Bonds available this month (Jan 2015)

The last Budget promised the issue of some National Savings bonds which would be available to those over 65. They inevitably became called Pensioner Bonds. They will be available some time this month (exact date not published yet), but the government have announced the interest rates which will apply.

There will be two issues - a 1-year bond with an interest rate of 2.8% AER, and a 3-year bond with an interest rate of 4.0%. Interest rates are fixed for the term. They are designed to be kept for the whole term, although early withdrawal is possible with the loss of 90 days interest.

The maximum which can be invested is £10,000 in each bond (i.e. £20,000 per person), although they are likely to be over-subscribed so investors may not get the full amount they want.

It's not often that we can say the government is providing market-beating rates, but here they are, hence the expectation that they will be popular,

The tax situation is less than ideal, though. They are taxable, and will be paid back with basic rate tax deducted. Higher or Additional rate taxpayers will need to declare the interest to HMRC, while non-taxpayers will need to reclaim via HMRC - it will not be possible to ask for the interest to be added gross (the R85 form used by banks and building societies will not work). So some people may decide it's not worth the hassle.

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