Only those aged 65 and over are eligible to invest in the bonds which launched in early January. Investments in the bonds are limited to ÂŁ10,000 in each bond, making a maximum of ÂŁ20,000 per individual. Even though savings rates have fallen since the bonds were announced in March 2014, the Treasury has kept to the rates it predicted at the time.
Those investing the maximum allowed will get a return of ÂŁ280 on their one-year bond before tax. Pensioners investing the maximum ÂŁ10,000 in a three-year bond will earn ÂŁ1,248 before tax. Both returns are attractive, given alternatives in similar styles of investment. The minimum investment is ÂŁ500, and the bonds are available by post, by phone, or online.
However, investors are subject to tax on the earnings from their bonds, reducing the headline gains. For those paying basic rate tax, 20% will be deducted from the interest they earn, reducing the return on a one-year bond to ÂŁ224 and on a three-year bond to ÂŁ991. Higher rate tax payers will need to pay extra.
The interest on both bonds will only be payable at the end of the term and anyone wanting to take their money out early will lose 90 days interest. Non-taxpayers will be able to reclaim their tax through an R40 form, available from National Savings and Investments. Even allowing for the fact that the returns will be taxable, they still currently offer better rates than cash Individual Savings Accounts (ISAs), which are tax-free.
Danny Cox of Hargreaves Lansdown, said:
“These are absolutely market-beating rates, and I expect them to fly off the shelves.”
The government has limited the issue to ÂŁ10bn and expects one million pensioners to buy them. They are being sold on a first-come, first-served basis, and it is likely that they will indeed sell out sooner rather than later.
Information is available on the National Savings and Investment (NS&I) website about the bonds and, if you have questions about their suitability, then please do get in touch with us directly, at which point we will happily discuss the bonds with you personally.
Sources: www.bbc.co.uk; www.nsandi.com; (Articles and information: 2015/01/17)
