Pensioners face a 30 pc rate plunge

NEARLY half a million savers with National Savings and Investments (NS&I) pensioner bonds must decide what to do with their money in the coming weeks.

But whatever they choose, they face a huge fall in the interest they earn over the next 12 months.

around 470,000 savers snapped up the one-year pensioner bond, which went on sale from NS&I between January 15 and May 15 last year. you have the choice of sticking with NS&I or looking for a better home for your money.

If you reinvest with NS&I, you will see your income virtually halve over the next year.

Unfortunately, banks and building societies offer only slightly more. They don’t want your money, so some have cut rates ahead of the £4.7 billion tied up in the NS&I bond looking for a new home.

The NS&I 65+ Guaranteed Growth Bond, on offer last year only to those aged 65 and over, starts to mature on Friday. The bonds paid 2.24 pc after tax (2.8 pc before), fixed for a year.

as a replacement, NS&I is offering only its standard Guaranteed Growth Bond, which pays a much lower 1.16 pc (1.45 pc). There is no special deal for pensioners.

a £10,000 investment that earned £280 interest before tax over the 12-month term in the pensioner version will earn just £145 in the new deal. even in the top one-year bond on the High Street, you will earn only £170. If you are happy using a computer and can get an internet deal, at best you’ll earn around £200 — but that’s still a drop of nearly 30 pc.

NS&I also gives you the option of reinvesting in a two, three or five-year version of its standard bonds at 1.36 pc (1.7 pc), 1.52 pc ( 1.9 pc) and 2.04 pc ( 2.55 pc) respectively. Or you can take your money and reinvest it elsewhere.

you will receive a maturity pack by post around a month before your 65+ Guaranteed Growth Bond matures. you have until the maturity date of your bond to tell NS& I what you want to do.

If you don’t respond to the letter by your maturity date, NS&I automatically rolls you over into the standard 1.16 pc (1.45 pc) one-year bond.

Once you’re there you have just 30 days to say you don’t want it. If you miss this window, you will have to pay a penalty equivalent to 90 days’ interest if you want to cash it in before the next maturity date. On £10,000, that’s a £36 penalty.

you have to give your maturity instructions online or by post. you can’t do it by phone, even if you bought the bond this way.

When the bonds went on sale, demand was so high the NS&I website crashed. NS&I has told Money Mail it has improved the resilience of the site and is confident it will work normally as these bonds mature.

If you do cash it in, your money will be paid directly into your bank account. If you have changed your account since you bought the bond, you can give your new details online or by phone on 0500 007 007. Banks and building societies offer better deals. The top online one-year rates include French- owned RCI Bank at 1.65 pc (2.06 pc). aldermore and Close Brothers banks pay 1.6 pc (2 pc) and Charter Savings Bank 1.56 pc (1.95 pc). In the High Street, you will earn much less. Here the top rates come from Leeds BS at 1.36 pc (1.7 pc) or virgin Money at 1.32 pc (1.65 pc). avoid the big banks, which pay a pittance. Lloyds Bank pays just 0.6 pc (0.75 pc ), Nat West and HSBC 0.72 pc (0.9 pc), Barclays 0.88 pc (1.1 pc) and Santander 0.6 pc (0.75 pc) or 0.8 pc (1 pc) for its 123 customers.