The NS&I Pensioner Bond rates announced by George Osborne today are well ahead of what’s on offer in the wider savings market with the best 1 year rate of 1.85% from FirstSave and 2.50% from Shawbrook Bank for 3 years.
The maximum investment in each bond is £10,000 per person so earning 2.8% instead of 1.85% on £10k for one year means the saver will get an extra £95 in interest before tax (£76 for 20% tax payers).
With the 3 year deal at 4% instead of 2.50% a £10k balance will generate an extra £479.73 over 3 years before tax (£378.97 for 20% tax payer).
A bugbear for non taxpayers is that the NS&I Bonds are paid net of basic rate tax and because it isn’t part of the R85 scheme it means that pensioners who don’t pay tax will have to go through the rigmarole of claiming the taxed element back from HMRC.
However the crux of the issue remains that the appetite for savers money from banks and building societies is almost non-existent.
Unfortunately I don’t think the launch NS&I bonds will have much influence on wider savings rates.
If the limit was £50,000 then I think there would be more of a response from providers in the form of better rates to prevent large swathes of credit balances walking out the door.
With instant access savings accounts paying around 1.50% at best and the top ISA equivalent at just 1.55% it’s not surprising that people are looking at alternative ways to earn a better return.
For some people, current accounts still look a good option, with the Santander 123 account by far the most attractive as it pays 3% on balances from £3,000 to £20,000 plus you have instant access to your money.
It’s no coincidence that while bank and building society savings accounts have been paying pitiful returns the popular consumer peer to peer (P2P) providers like Zopa and RateSetter are seeing record inflows of money.
Peer to peer companies may not offer the Financial Services Compensation Scheme safety net, but they do protect savers funds via their own protection funds, and whilst there is no 100% guarantee that your capital is safe, RateSetter has been running for over four years and no one has lost a single penny to date.
With Interest rates of 4% and 5% plus on offer, P2P will be an even bigger growth area in the 12 months ahead.
|Provider||Term||Rate||Gross annual interest on £10k over term||Net annual interest on £10k over term|
1 Year1.85% AER£185.00 (1 year)£148.00 (1 year)NS&I Pensioner Bond1 Year2.80% AER£280.00 (1 year)
£95 extra£224.00 (1 year)
£76 extraShawbrook Bank
3 Years2.50% AER£768.91 (3 years)£612.08 (3 years)NS&I Pensioner Bond3 Years4.00% AER£1248.64 (3 years)
£479.73 extra£991.05 (3 years)
Calculations by Moneycomms.co.uk 12.12.2014