NS&I 65+ bonds maturity – what will you do with the proceeds?

14 November 2017

If you're over 65, and had some spare cash around 2.5 / 3 years ago, you may have invested this into the special issue of NS&I 65+ Guaranteed Growth Bonds (or 'pensioner bonds' as they were dubbed at the time). These bonds were available on both a one year and a three year term and exclusively available to individuals aged over 65. Individuals were able to invest up to £10,000 per person in the three year issue.

Savers were able to apply for pensioner bonds from January 2015 and the issue ended in May 2015. The guaranteed interest rate on the three year issue was 4.0% gross pa AER (quite exciting at the time, given the historically low interest environment), and the bonds will mature in 2018.

Lots of people did take up this offer – as of 16 May 2015, over one million older savers had bought over £13 billion of both issues of the pensioner bond.

So, with maturity approaching, what might you get and what will you do with it? For an individual who invested the maximum into the three year issue, total earnings will be approximately £1,249 (£400 in year one, £416 in year two and £433 in year three). The interest earned is paid gross, but taxable – the tax-free personal savings allowance of £1,000 for basic rate income tax payers (£500 for higher rate tax payers) could help to protect some of the interest.

Based on current NS&I offers, we do not expect these types of offer to be replicated, either in terms of deposit rate or amount available to invest, as you can see here: https://www.nsandi.com/Investment-Guaranteed-Growth-Bonds. November's Bank of England base rate rise might see rates increase slightly, although it is unlikely this will make a significant difference at this time.

For the maturing bonds, NS&I will be sending investors a printed pack explaining maturity options 30 days before the bonds reach the end of their term. Even with the rise in base interest rates to 0.50%, announced on 02 November 2017, there is no guarantee that NS&I will offer an equivalent investment for the maturity proceeds so it is worth considering where else your money might go, if it's not needed elsewhere.

Short of a surprise announcement from the Chancellor in his November budget, one option might be to use a proportion of your ISA allowance (£20,000 in the current tax year) and this could be into a stocks & shares type arrangement, if the cash remains surplus and you have the capacity and ability to invest for the longer term. Alternatively, you could look at a cash ISA, although we do not expect savings interest rates to shoot up just yet and it is unlikely that you will be able to match either the returns from the maturing pensioner bonds or inflation, meaning that, although the money you invest will be secure, its value (buying power) could reduce in real terms. Watch this space, though, and you might want to avoid tying up your cash in a low interest offering, as we do envisage gradual increases in the Bank of England base rate over the coming months and years.

As a final point, do bear in mind that NS&I has said that it won't be allowing customers to provide maturity instructions over the phone, owing to the large number of people they expect to be making their decisions at the same time. You will be able to give your maturity instructions by post or online via the NS&I website: www.ns&i.com .

And as a final alternative, this tax year's annual gift allowance for inheritance tax purposes is £3,000, and you can go back one tax year if not used last year. This could simply allow you the opportunity to give a proportion of the funds away to loved ones.

As always, no individual advice is provided during the course of this blog and if you would like to discuss your investment or gifting options then please contact the team at Chapters Financial.

Vicky Fulcher Dip PFS

Associate Director

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899