885,000 NS&I ‘Pensioner Bonds’ mature: act now before rate cut

More than 885,000 savers will see their National Savings & Investments “Pensioner Bonds” mature between January and May.

Unless told otherwise NS&I will automatically tie the money up in another three-year account that pays significantly less.

More than £8.9bn was saved in NS&I’s three-year 65+ Guaranteed Growth Bonds in 2015, according to advice service Savings Champion. The bonds paid 4pc.

Customers who fail to make a decision before the bonds mature will see them roll over into NS&I’s three-year Guaranteed Growth Bond at a rate of 2.2pc, which is competitive, although there will be a 30-day “cooling off ” period in which savers can cancel.

Those who want to move their cash elsewhere must tell NS&I by post or online, not on the phone.

The tax situation for “Pensioner Bonds” savers is complex.

In April 2016, when the Personal Savings Allowance was introduced, Telegraph Money reported that millions of savers in the bonds faced tax on interest they had not yet received.

Customers who purchased the bonds between Jan 15 and April 5 2015 were taxed on the interest paid on the first anniversary only. Subsequent anniversaries saw interest was added without being taxed.

Those who bought the bonds after April 5 2015 always had the interest added to their account without deduction of tax.

The interest counts towards the Personal Savings Allowance. Basic-rate taxpayers can earn £1,000 a year tax-free, and higher-rate taxpayers get £500.

You could stick with NS&I. Its online-only Guaranteed Income Bonds and Guaranteed Growth Bonds pay 1.45pc and 1.5pc for a year, on a minimum of £500. Savers who cash in earlier pay a penalty equivalent to 90 days’ interest. NS&I’s Direct Saver, an easy-access account, pays 0.95pc and the Direct Isa pays 1pc.

The prize fund of NS&I’s popular Premium Bonds has also improved – the effective rate has increased from 1.15pc to 1.4pc.

But higher rates are available elsewhere. The top one-year bonds, from Investec and Al Rayan Bank, pay 1.85pc – almost 30pc more than NS&I’s Income Bonds.

Investec has a minimum balance of £25,000, while Islamic provider Al Rayan Bank requires at least £1,000. Al Rayan’s rate is not actual interest. It’s an “anticipated profit rate”, which can go up or down.

Paragon Bank and Access Bank UK both pay top rates of 2.05pc for two years on balances of £1,000 and £5,000 respectively. None of these providers permit access during the term.

Easy-access accounts from the Post Office or RCI Bank, the French provider, both pay 1.3pc – almost 37pc more than NS&I’s Direct Saver.

Go to telegraph.co.uk/personalbanking/savings for more.