Pensioner bond launch crashes NS&I website
Pensioner bonds from National Savings & Investments (NS&I) finally launched yesterday, (16 January 2015), but surging demand for the inflation-busting products caused the provider's website to crash.
Two options are available for savers aged 65 and over - a one-year Guaranteed Growth Bond paying 2.8% before tax (2.24% after basic-rate rate has been deducted, 1.68% after the higher-rate and 1.54% after the additional rate) and a three-year version paying 4% (3.2%, 2.4% or 2.2% after tax).
Interest is paid on maturity for the one-year bond but annually on the three-year option so savers will benefit from compound interest. The minimum amount that can be deposited is £500 and the maximum £10,000 per person and the bonds can be held by an individual or jointly by couples.
However, demand for the bonds has been so huge that the NS&I website crashed repeatedly on the morning of the launch.
A spokesperson for NS&I said: "We're currently experiencing high demand for our new 65+ Bonds. We expect them to be on sale for months not weeks and would like to reassure savers that there is no need to rush to invest. We're grateful to our customers for their patience."
Patrick Connolly, a certified financial planner at Chase de Vere, said: "NS&I expects them to be available for 'months rather than weeks', but we would still encourage savers to act sooner rather than later."
However, he warns: "While these bonds offer market-leading rates, they are far from being the cash panacea which some might suggest. These products cannot be held within a tax-free cash Isa and don't pay regular income."
He added: "To be of most value, pensioner bonds would be allowed within a cash Isa and be capable of paying a monthly income, even if savers had to accept a slight lower interest rate in order to receive this. This would make them far more useful for pensioners trying to generate income from their cash savings."
In the meantime, Connolly acknowledges the "stand-out rates and complete security" on offer from the bonds and says Chase de Vere "will be advocating pensioner bonds to many of our clients who are able to lock their money away and want to achieve a better return on their cash savings".
NS&I's pensioner bond rates are far higher than the best available from traditional banks and building societies. According to Moneywise.co.uk/compare, the top rate on one-year deals is currently 1.85% (1.48%) from internet bank FirstSave and Indian-owned bank ICICI Bank UK. That means older savers can get an extra £95 interest on the full £10,000 entitlement on the NS&I bond.
It's worth noting that, with the 65+ bonds, savers needing access to their money will be able to withdraw it but will do so with a penalty equivalent to the loss of 90 days' interest. If the full deposit is cashed in within 90 days of investing, bondholders will get back less money than they originally invested.
Bonds can be opened over the phone, by post or online. The phone number is 0500 500 000 and calls are free from a BT landline.
To apply by post download and print out the application form available here. You will need to return it to NS&I at 65+ Guaranteed Growth Bonds, National Savings and Investments, Glasgow, G58 1AD and include a cheque for the amount you wish to deposit.
To apply online, visit nsandi.com/65-guaranteed-growth-bonds and fill in the webform. At the time of writing, the website was hit by teething problems and experiencing difficulties in submitting applications.
Before opening an account, bear in mind that 65+ Guaranteed Growth Bonds are fixed-rate investments with set terms so there is no right to cancel should you change your mind.
Find out everything you need to know about the new pension rules and how to plan ahead for the retirement you deserve with our new magazine, How to Retire in Style. The magazine is available to buy now from all leading newsagents, or can be ordered online at moneywise.co.uk/retire
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.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
This is effectively paying interest on interest. Interest is calculated not only on the initial sum borrowed (principal) or saved (see APR and AER) but also on the accumulated interest. The more frequently interest is added to the principal, the faster the principal grows and the higher the compound interest will be. Compound interest differs from “simple interest” in that simple interest is calculated solely as a percentage of the principal sum.