13/02/18Time to act if you have a ‘Pensioner Bond’
For those who invested in 65+ Guaranteed Growth Bonds in 2014 and 2015, it is time to think about what to do with the returns.
What are 65+ Guaranteed Growth Bonds?
In 2014, NS&I (National Savings and Investments) released a series of bonds for those aged 65 and over. Known as ‘pensioner bonds’ they offered 4% taxable interest per year, for three years (Source: NS&I). As this was much higher than the market average, they were very popular, and 1.1 million people invested a total of £13.7 billion (Source: NS&I)
The first bonds, launched in January 2015, are now due to mature.
Those who invested the maximum of £10,000 will have a total of £11,300 to reinvest once their bonds mature.
That means that, if you were one of the thousands who invested in these bonds in 2014/15, you have an important decision to make; and you may not have long to act.
So, what are the options?
1. Do nothing
You may wish to leave your money invested in NS&I bonds. However, once the current bonds mature, it will automatically be reinvested into Guaranteed Growth Bonds. These offer a much lower return of 2.2% per year. But, once transferred, your savings are locked in for three years; early access incurs a penalty of 90 days’ interest. (Source: NS&I)
This might seem like a suitable option. Your savings are secure and appear to continue growing. However, with inflation hovering around 3%, interest of 2.2% means that your money will lose value over the three years it is invested.
On the other hand, the 2.2% growth is guaranteed, so it may be a viable option if you are more risk-averse and just want to keep your money safe, rather than inflation-proofed.
2. Put your returns into a savings account
Of course, your money needs to be held somewhere, but with most guaranteed interest rates sitting below 2%, the returns on your savings currently won’t beat inflation and you will lose value in real terms.
Why is this?
Put simply:
- Inflation is the rate at which the cost of goods and services increases year-on-year.
- Interest is the rate at which your money grows year-on-year.
If your money is growing at a slower rate than the cost of items you want to buy, your buying power is reduced.
3. Invest the cash
You can take the cash out of the bond once it has matured and invest it as you wish. Of course, all investments carry risk and there is a possibility that you could end up with less than you put in to begin with.
But, if you want the higher growth and returns, it may be a favourable option. Especially if you have other capital in savings and a stable income which supports your lifestyle. If you have money which has been tied up for three years already, which you have not needed to access, you may be more willing to take the increased risk.
What to do if you have 65+ Guaranteed Growth Bonds
Whilst we cannot tell you here how to manage the returns you will get from your matured 65+ Guaranteed Bonds, we can tell you that acting soon is a must. NS&I are sending letters to those people who invested in the bonds when they were available, to ensure that they are aware of the upcoming maturities.
However, if you have moved to a new house or have a loved one who purchased bonds but has since passed away, you will need to contact NS&I to access the returns.
You can get in touch with NS&I here.
The importance of advice
Talking to an independent financial adviser should be your first port of call when making any financial decision. However, if you haven’t thought about talking to a professional before, this is an ideal reason to start.
A financial adviser will be able to analyse your circumstances. They will then take your aspirations and objectives into account when offering advice and products which will help you to continue to grow your assets.
Whether you’re hoping to increase your income, supplement a loved one’s living costs or leave a legacy when you die, a financial adviser will help you to make decisions to work towards those goals. This means that you can be comfortable and confident in your financial decisions and stability.
So, why not give us a call?
Please note:
The Financial Conduct Authority does not regulate NS&I products.
