Pensioner bonds: what next?
When pensioner bonds (or 65+ Guaranteed Growth Bonds, to give them their official name) launched in January 2015, they provided a welcome moment of relief from pitifully low interest rates.
NS&I, a Government-owned savings bank, launched two products: a one year bond paying 2.8% and a three year bond paying 4%. Given that the average one year ISA paid 1.41% at the time, it’s not difficult to see the appeal, and they were extremely popular. Pensioners rushed to take advantage of the rate, with more than a million people opening bonds within months.
Sting in the tail for pensioners
However, one year on, the first one year pensioner bonds are maturing and NS&I has announced that the rate for new one year investments will fall by almost half, to 1.45%.
This puts pensioners who invested in the first bonds in an awkward position. Either they can accept the new, much lower rate, or look outside the safety of NS&I products to earn a comparable rate of interest.
Alternatives: bonds and ISAs
The first option – leaving money in the pensioner bonds at a lower rate – isn’t very appealing: many pensioners rely on the income from their investments, and halving one of their sources of income is a very difficult prospect.
Elsewhere, there are few products that can match the original rate offered by pensioner bonds: the average one year cash ISA currently pays 1.17%, and the Daily Telegraph noted this week that even the best one year bond on the market only pays 2.15%.
However, investors prepared to look at products not covered by the Financial Services Compensation Scheme can earn a comparable return – or even exceed it.
While investing through marketplace lending platforms such as RateSetter does mean putting capital at risk, it can deliver substantially better returns: an annualised rate of 3.7% for a one year investment is available at the time of writing, with no upper investment limit.
More than 11,000 people aged 60 or over are already investing via RateSetter to make their money work harder.
To find out more about investing via RateSetter, have a look at our lending page.