If you were one of the 900,000 people who opted to save into the National Savings and Investments (NSandI) 65+ Guaranteed Growth Bonds back in 2015 then you now have a decision to make.
These bonds are maturing, meaning the very generous interest rate (compared to other alternatives) is coming to an end and you need to tell NSandI what you want to do.
What are NSandI ‘Pensioner Bonds’?
As Miles Brignall explains in his Guardian article, back in 2015 the NSandI launched a new savings product for the over 65. It featured an interest rate of 4% per annum, fixed for 3 years and was dubbed the hottest savings product around. It became so popular that the NSandI struggled to meet demand.
The correct name for the savings product is actually NSandI 65+ Guaranteed Growth Bond but it has become known as a ‘pensioner bond’ due to the age restriction on who could apply.
If you are not sure who the NSandI are, they are backed by the government, meaning all cash is 100% secure. They are not a bank and only provide cash savings products.
What’s happening
Well now we are in 2018 the 3 year deadline for the 4% per year interest is here and the NSandI are writing to savers to make them aware of the deadline and their options going forward.
If you do nothing NSandI will automatically put you into a new Guaranteed Growth Bond for a further 3 years. This savings product currently pays an interest rate of 2.20% per year.
Options for maturing NSandI ‘Pensioner Bonds’
So what options do you have for the cash saved into these NSandI pensioner bonds?
Well as mentioned above, you could do nothing and as long as you are prepared to lock your money away for 3 years, the new 3yr Guaranteed Growth Bond is still paying a decent 2.20% per year interest rate when you compare this to what else is available for cash savings.
As Simon Lambert explains in his This Is Money article you could opt for an alternative NSandI Guaranteed Growth Bond that will be fixed for less years e.g. 1 or 2 years but these bonds will pay you an even lower rate of interest. Simon’s article also provides a useful link to alternative cash savings providers and their top rates if you wanted to transfer the money out of NSandI.
Harvey Jones in his Express article discusses alternatives to cash saving in the form of Peer to Peer lenders. In order to get a return or interest rate higher than what is available from the traditional banks you will need to take more risk. This is where Peer to Peer lenders come in, with the likes of Ratesetter offering higher interest rates for an increased level of risk.
A word of warning. Peer to Peer lending should never be seen as a comparison to cash saving. Peer to Peer lenders offer a high rate of return because you are taking more risk. With Peer to Peer lending you are basically lending your money to borrows. If these borrowers default on mass, perhaps during another recession, your money is not protected by the Financial Services Compensation Scheme (FSCS) unlike the banks where the first £85,000 of your savings is guaranteed.
Investing
Apart from taking all of your money out of NSandI and holding onto the cash the other option is to invest in the stock market.
In order to decide whether this is right for your NSandI money you need to consider what this money is for.
- Are you planning to use this money for spending over the next 5-10 years?
- Is this your only savings?
- Are you very risk averse?
If you answered ‘yes’ to one or all of the questions above then investing into the stock market is probably not right for you. If on the other hand you answered ‘no’ to all of the above questions then you may want to consider investing the money instead of saving it into another NSandI product or an alternative cash saving account.
The investment returns of the UK stock market as measured by the FTSE All Share Index over the last 3 years ( 1st January 2015 to 31st December 2017) averaged just under 7% per year. Better than the 4% per year you have received from NSandI.
However investing into the stock comes with risk, there is no guarantee that past performance will be repeated. The stock market will go up and down on a daily basis and you could find your money falls to a value lower than what you started with. Having said that, if you are comfortable taking some form or risk, then with the right investment portfolio you would expect stocks and shares to outperform cash saving over the long term (10 years+).
If you would like some more guidance, check out my video on where to start with investing and download my Simply Investing Guide below.
Risk warning:
Stock market linked investments and any income from them, can fall as well as rise and is not guaranteed. Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.
