The new bonds available from National Savings & Investments (NS&I) went on sale today (15/1/2015). Technically called “65+ Guaranteed Growth Bonds”, they have been dubbed “Pensioner Bonds” by the media. You need to be 65 years of age or older to purchase these bonds but they do offer a very attractive interest rate in comparison with current bank deposit rates. Interest is either 2.8% per annum for a one year bond, or 4% for a three year bond. The maximum that can be invested in each of those two types of bond is £10,000 per person (i.e. £20,000 in total).
The interest is not paid out, but accumulates within the bond until maturity. The interest is taxable and tax is deducted before payment at the standard rate, but can be recouped by non-taxpayers. Those who pay higher rate tax would pay additional tax. The bonds incur a penalty if cashed in early so these are not for people who may need cash urgently.
It is expected that there will be high demand for these bonds so anyone interested should apply as soon as possible. Although doing so on the first day they were available has proved to be very difficult on-line. The NS&I web site seems unable to cope with the demand.