'Pensioner Bonds' mature – the options explained – Hargreaves Lansdown

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'Pensioner Bonds' mature - the options explained

No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

No recommendation

No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

  • The three-year NS&I ‘Pensioner Bonds’, paying 4%, will start maturing on 15 January.
  • If you do nothing, your money will be automatically reinvested in the standard NS&I Guaranteed Growth Bond for three years – offering 2.2% interest.
  • This is quite a cut in interest, so it’s worth exploring the options.

If you want to reinvest in an alternative NS&I product, or elsewhere, you will need to inform NS&I no later than two working days before the bond matures.

Below we consider alternative options for the maturing investments, depending on your investment timeframe.

Easy access

If you need easy access and don’t want to put your capital at risk, then in many cases, despite low rates, easy-access accounts may be the best bet for at least some of the money. At the moment, you can get interest rates of up to 1.32%.

It’s also worth considering an easy-access cash ISA. This year’s ISA limit is £20,000, so you may be able to shelter all of the cash from a maturing Pensioner Bond from future tax.

But interest rates are lower than the equivalent easy-access accounts – peaking at 1.15% in the current market. However, if there’s a risk you could pay tax on any interest, you could be better off in a cash ISA – even given the difference in rates. Tax rules can change and benefits depend on individual circumstances.

Less easy access

It’s easy to err on the side of caution, and hold too much money in an easy-access account, accepting a disappointing rate on tens of thousands of pounds.

It’s worth thinking through the possible scenarios in which you would need access to the cash – and whether you’d require all of it at once.

If you are happy to tie up at least a portion of this cash for between six months and five years, you can get a better rate. You can currently earn 2.5% on a five-year fixed rate account, and 2.15% on a five-year fixed rate ISA.

Longer-term

If you can put aside the cash for five years or more, and you are prepared to take more risk with your money, you can consider the stock market.

Unlike savings accounts where you simply receive a rate of interest, your money has the potential to grow through an increase in the value of the investments. You may even receive dividends in addition. However, investing in the stock market puts your capital at risk, so you could get back less than you put in.

Some people over the age of 65 may be concerned that longevity issues rule out long-term investments. However, you may well live longer than you expect. According to Public Health England a 65-year-old man can expect to live another 19 years, while a 65-year-old woman can expect another 21 years.

Even if you fall short of the average life expectancy, investments can be left to your family. They may have to pay inheritance tax, but there’s no requirement to cash them in, so they can still be held for the long term.

See our Stocks & Shares ISA investment ideas

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