It has been a while since any NS&I product was deemed competitive, albeit what is on offer across the wider market for cash savings is very low and even below inflation these days.
So the announcement of a new Savings Bond for the over-65s is generally welcomed, considering the closure of the very popular index linked certificates back in 2012.
NS&I is not run on sales targets like ordinary banks and building societies, but instead is set an Annual Net Financing Target by the Treasury, which governs how much it raises each year.
Index-linked Savings Certificates are free from UK income tax making them attractive to taxpayers, particularly higher rate taxpayers, and are backed by the Treasury so are considered to be safe deposits. When the certificates were reintroduced in 2011, they sold out in less than four months – the point at which that year’s Net Financing Target had been reached.
So the announcement that the new Pensioner Bonds will have an interest rate of 2.8% for a 1 year bond and 4% for a three-year one, will no doubt create a buy now whilst stocks last mentality, especially as the deposit limit will be £10,000 each.
The bonds will be taxed like any other savings, with those exempt eligible to receive the interest tax-free and up to £10bn worth of the new bonds will be issued.
Chief Secretary to the Treasury, Danny Alexander, said “the new bonds were a way of helping those who have seen the value of their savings eroded by the low interest rates that have been an absolutely necessary part of this government’s economic plan”.
Jane Platt, NS&I’s chief executive, said: “The launch of a market leading savings bond for people aged 65 plus will help support those who rely on their savings income in retirement.”
We believe this is good news for the beleaguered saver and they will be taken up very quickly, again as in 2011 the Banks will cry foul play.
However, Dot Gibson, general secretary of the National Pensioners Convention, said UK pensioners were still concerned about their finances. “Benefits such as the winter fuel allowance, cold weather payments and the Christmas bonus have all been placed into the welfare cap, which could lead to cuts in the future,” she said.
Let us hope it’s not a vote buyer and NS&I/Government start to play a long term role in helping savers.