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What to do with your NS&I 65+ Bond

 

Many readers might have taken out the Government’s offering of NS&I 65+ Guaranteed Growth Bonds a year ago when they were made available. They offered a very attractive rate of interest of 2.80% gross on the one year version, but these are now about to mature so investors have to decide what to do with them.

What are the options? You can cash them in. Or you can re-invest the proceeds in another one year term bond at 1.45%, and that’s not nearly as good of course. You can also reinvest for terms or 2 years, 3 years and 5 years when the interest rates are 1.70%, 1.90% and 2.55% which is more generous, but still not as attractive as the original bond.

Are any of those bond rates competitive? Yes they are in fact as interest rates are now so low there are few institutions that offer a better rate for a fixed rate bond. You can look at some comparable rates on Moneysupermarket.com for example, or look at the rates offered on bonds by the major banks. Will interest rates remain so low however, bearing in mind we are running at historically extreme figures and the US has just raised interest rates?

If interest rates do rise, and you have opted for any of the longer terms, there is one advantage of these bonds – you can cash them in at any time with a 90 day interest penalty. So if you are happy with the rates payable on the 5 year bond that might be more attractive than the one year bond.

How do they compare with current inflation? The late Retail Price Index (RPI) index rose 1.1% in the last year, but the Consumer Price Index (CPI) rose by 0.1% so at least you are getting a real rate of interest. Although those over 65 in age might argue that neither of those rates realistically reflects their personal cost inflation.

As these bonds were limited to a maximum of £10,000 invested, but with the new ISA season coming up in April, it might be worth cashing them in and holding the cash until April for reinvestment of most of it in an ISA (cash or share).

The interest on a new one year bond of £10,225 (net approx, carried forward) will be all of £148 so others might simply consider that this is altogether too much hassle for a relatively small return, and take the cash and spend it. The original 2.8% interest rate was attractive for a Government guaranteed savings account even if the maximum that you could put in was low. But the replacement options are much less attractive.

In summary those are the options open to you.

Roger Lawson

One comment
  1. Stephen Burke 20th December 2015 at 12:49 pm

    In the next tax year between 1 and 6k of interest will be tax free, which may may the rates look slightly better.

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