The new Pensioner Bonds are so popular that in the first two days they were available £1.15 billion was paid in and the NS&I website crashed due to the demand. So are they any good? The short answer is yes! At 2.8% the one year bond pays nearly 1% more than anything else on offer whilst at 4% the three year version pays 1.5% more than its competitors and nearly 1% more than you can get on a five year bond!
There are a couple of catches though. Firstly, interest is paid at the end of the term rather than monthly or annually, this isn’t a huge problem if you’re not after income but it is out of keeping with the rest of the market.
There is basic rate tax deducted at source and there is no option for non-taxpayer to register for tax not to be deducted, instead they must reclaim the tax from HMRC. Of course, it is in the government interest that people forget as unlike a bank they get to keep the tax deducted… Also, they are not available as an ISA so basic, higher and additional rate tax payers will suffer tax on their return.
They are only available to over 65s and ultimately the interest will be paid from general taxation. A bank or building society borrows from savers paying them interest and lends to borrowers charging them a higher interest, making a profit on the difference. The government is not in the business of making loans, instead it funds the interest it pays out from our taxes. At a time when the government can borrow from the markets for less than 1% for terms of up to five years is it right that they pay a select group of the population three to four times this amount? I am not suggesting that eligible savers should not take advantage of the higher rates available but it doesn’t represent good value for the tax payer.