Over £10bn worth of pensioner bonds are set to mature over the next few months
More than £10billion worth of bonds are set to mature over the next few months and many pensioners will be wondering what to do with their money.
They will struggle to generate such an attractive return with savings rates lower than three years ago and inflation far higher, so they need to choose carefully.
ROLL WITH IT
There were originally two 65+ Guaranteed Growth Bonds from National Savings & Investments (NS&I), one paying 2.8 per cent over 12 months, the other paying 4 per cent over three years.
More than 885,000 over-65s invested more than £8.9billion in the three-year bonds between January and May 2015, due to mature between now and May.
If savers do nothing, their cash will automatically roll over into NS&I’s recently relaunched Guaranteed Growth Bonds, which run for another three years.
Anna Bowes, director of independent savings website SavingsChampion.co.uk, said this pays just 2.20 per cent over three years: “This will disappoint savers who were enjoying 4 per cent a year, but in the current market, 2.20 per cent is highly competitive.”
Savers should roll over only if they want to lock their money away for three more years.
Bowes added: “To access your funds early, you would have to pay a penalty equivalent to 90 days’ interest.”
Those who want early access or a monthly income should shop around.
She said: “You will need to contact NS&I by post or online to switch, as it will not accept maturity instructions over the telephone.”
MoneyComms.co.uk personal finance expert Andrew Hagger said pensioner bonds paid way above market rates when launched and even more so today: “There is no chance of earning anywhere near that figure now without an element of risk.”
The stock market has performed well lately and will tempt some. “However, potential volatility means it is not suitable for many pensioners,” he added. Peer-to-peer (P2P) lenders such as RateSetter.com are another option.
Hagger said: “It currently pays 4.3 per cent over five years, but remember, P2P lenders are not covered by the Financial Services Compensation Scheme (FSCS), which protects the first £85,000 held in a bank or building society account.”
The FSCS does cover the new breed of challenger banks, which typically offer the best savings rates these days.
He said: “Your money is as safe as it is with a high-street bank or NS&I.” He suggested spreading your money between best-buy accounts with different savings terms: “With interest rates possibly rising, fixed rates may creep up so avoid locking away all your cash now.”
Hagger said Charter Savings Bank currently pays 1.87 per cent for 18 months, Paragon Bank pays 2.05 per cent over two years and Masthaven Bank pays 2.08 per cent for 30 months.
Over three years, United Trust Bank matches NS&I by paying 2.20 per cent a year, while Charter Savings Bank offers 2.21 per cent.
MoneyToTheMasses.com director Damien Fahy said things have deteriorated sharply for savers since 2015: “Three-year pensioner bonds paid 4 per cent while inflation stood at just 0.3 per cent. Today, NS&I pays 2.20 per cent, but inflation has jumped to 3.1 per cent, so they are losing money in real terms.”
Stock market investors have done much better over the same period, with the FTSE 100 rising 35 per cent, but he warned against piling into shares with global markets at all-time highs. Those willing to take more risk could consider the TwentyFour Dynamic Bond.
Fahy said: “This is a well diversified bond fund offering a yield of more than 4.5 per cent and has delivered a total return of 15.65 per cent over the last three years.”