Savings update: pensioner bonds trump all else
National Savings & Investments (NS&I) bonds for those age 65 and over will pay 2.8% before tax (2.24% after) for one year and 4% (3.2%) for three years. They go on sale in January - the exact date is still to be announced.
The rates are far higher than the best rates available from banks and building societies. The top rate on one-year deals is currently 1.85% (1.48%) from internet bank FirstSave. That means older savers can get an extra £95 interest on the full £10,000 entitlement on the NS&I bond.
For three years the best deal is 2.51% (2%) from Secure Trust. Compared with this current best buy the NS&I bonds would generate an extra £447 in interest over the term.
But you will not see any interest on the NS&I bonds until the end of the term. Minimum investment is £500 and the maximum £10,000 per bond.
On easy-access accounts the best rate is 1.4% (1.12%) from ICICI Bank, AA Savings, Post Office and Tesco Bank. All bar ICICI Bank come include bonus interest which only lasts for 12 months.
On tax-free cash Isas National Savings & Investments pays 1.5% with no short-term bonus, but you cannot transfer your existing cash Isas into the account. Best for transfers is Barclays Bank at 1.49% on a minimum £30,000 with no bonus.
Post Office pays a higher 1.55% on its Premier Isa which includes a bonus of 0.8 percentage point bonus for 18 months. On fixed-rate cash Isas Post Office pays 1.7% for one year while AA Savings pays 2% for two years.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.