Osborne extends pensioner bond scheme
The government has extended the popular National Savings and Investments (NS&I) pensioner bond scheme.
A further £5 billion's worth of the over-65s bonds is being made available, taking the estiate of the total amount that will be issued to £15 billion.
The deadline for applying for the bonds has also been extended by three months until 15 May, a week after the General Election.
Some 110,000 over-65s snapped up bonds in the first two days of their being on sale and 600,000 have done so in total since the launch.
Two options are available for savers – 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.
Announcing the extension to the scheme on the BBC's Andrew Marr Show, Chancellor George Osborne said the pensioner bond has been "the most successful saving product this country had ever seen".
He added: "We will guarantee that it remains on sale for a further three months because this government backs savers and supports people who do the right thing."
Anna Bowes, director of savings advice website Savingschampion.co.uk, said: "It's no surprise these bonds have been hugely successful but it was a surprise NS&I didn't predict this. With rates way over and above the nearest competition, the bonds were always going to fly off the shelf. That said it's great news that they have been extended so more savers can take advantage, especially those who will turn 65 within the next three months.
“Sceptics may suggest the timing is apt and that the extension is needed given George Osborne's statement that they expected the bonds to be available for 'months'. But in the current desperately low interest rate environment, anything that can help beleaguered savers should be commended."
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.