Pensioner bonds: a guide to the fixed-rate savings bonds for over-65s

If you’re 65 or over and looking to earn a decent rate and guaranteed income growth on your savings, one option is pensioner bonds. These bonds can be a good choice for anyone looking to invest a lump sum in government-backed National Savings & Investments (NS&I).

Find out more about pensioner bonds including what they are, who they’re suitable for and how to apply, in our guide.

What are pensioner bonds?

Pensioner bonds are fixed-rate savings bonds from government-backed NS&I. They’re officially called 65+ Guaranteed Growth Bonds, but are sometimes referred to as pensioner’s guaranteed income bonds.

The government launched them in January 2015 to help people aged 65 or over get more interest on their savings. That issue of bonds was on sale until 15 May 2015.

A fixed-rate savings bond is a type of savings account. You invest a lump sum for a set period of time (the term). The interest rate is fixed at the start and stays the same for the whole term.

Read our guide to Savings Bonds.
Read our guide to National Savings & Investments.

Why might I want one?

  • NS&I income bonds often pay market-beating rates. There is a one-year bond paying 2.8% and a three-year one paying 4%. These are gross rates (before tax). At the end of January 2015, the best one-year bond from a bank or building society paid 1.9% and the best similar three-year one paid 2.41% (Source: Moneyfacts).
  • Your savings are secure and 100% backed by HM Treasury.

Things you need to know about pensioner bonds

  • The bonds don’t pay a regular income. Interest is added to your account on each anniversary and paid at the end of the term.
  • The interest is taxable and is paid with 20% tax taken off. If you’re a higher-rate or additional-rate taxpayer you have to declare the interest to HMRC and pay the extra tax due. If you’re a non-taxpayer or pay 0% on your savings income, you can apply for a refund of the tax using form R40. From 6 April, 2016, the rules for tax on savings interest are changing. From that date, interest will be added to these bonds without basic-rate tax deducted.
  • If you take out any money during the term of your guaranteed income bond, you’ll pay a penalty of 90 days’ interest on the amount you’ve withdrawn.
  • There’s no cooling-off period. If you cash in your bond within the first 90 days, you’ll get back less than you invested because of the 90-day interest penalty.
  • If you have a Lasting Power of Attorney or a Court of Protection Order for someone, you can apply on their behalf.

The Personal Savings Allowance

As of April 2016 you are entitled to a personal savings allowance. This means you don’t pay tax on the first £1,000 you earn from savings (or the first £500 if you’re a higher rate taxpayer).

Find out more about the Personal Savings Allowance.

How much can I invest?

  • You can invest from £500 to £10,000 in both the one-year and three-year bond. The maximum overall investment is £20,000.
  • You can apply jointly with someone else as long as that person is also at least 65. The same investment limits apply for joint applications. A couple, for example, could invest up to £20,000 in each bond, giving them a maximum investment of £40,000 between them.

The government set a £10 billion overall limit on the amount that could be invested in this issue of the bonds.

Top Tip

Check how the rates after tax compare to the rate you could get on a fixed-rate cash ISA. The advantage of an ISA is that your money is protected from tax for as long as you keep in it in the ISA.

How do I apply for one?

You’re too late for the first issue but other but other releases of the bond may become available. Applications were by phone, post or online. Attorneys or deputies making an application under a Lasting Power of Attorney or Court of Protection Order have to apply by post.

For more information, visit the NS&I website.