What to do with your maturing NS&I ‘pensioner bond’ money

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If you saved into NS&I’s ‘pensioner bond’ fixed for three years, what should you do with the money now?

What to do with your maturing NS&I ‘pensioner bond’ money

Three years ago NS&I released its 65+ bond which paid 4% interest over three years and 2.8% over one year. The bonds went on sale on January 15th and were on sale until May. Hundreds of thousands of people who invested in the three year bonds will have to choose what to do with the money they’d saved.

SAVVY TIP: If you don’t do anything, your money will be rolled over into the current NS&I Guaranteed Growth Bond, which was paying 2.2% interest over three years, but will pay 1.95% fixed for three years for customers who take out this bond from Tuesday 6th March. It doesn’t affect you if you already have invested in the Guaranteed Growth Bond as the interest rate is fixed.

JARGON ALERT! Fixed rate savings account or bond? A fixed rate savings account does what it says on the tin in that the interest rate is fixed for a set length of time, which is typically between one and five years. These accounts are often called fixed rate bonds but they’re really just savings accounts where your money is locked away and – sometimes – where you have to save a fixed amount.

If you have money in one of these bonds, what should you do with it? There are lots of options; here are a few suggestions.

Three year fixed rate savings accounts

You could put the money into a three year fixed rate savings account with another provider if you don’t want to leave it with NS&I. As I write this, you can earn up to 2.25%, which is only a fraction better than the rate you’ll get from NS&I. The best buys, according to Savingschampion.co.uk are:

  • Ikano Bank: Its three year fixed rate savings bond pays 2.26% interest if you have it paid annually and 2.24% if it is paid monthly. If you’ve never heard of Ikano Bank, it was set up by the same family who founded Ikea.

How much can you save? Between £1,000 and £1 million.

How do you open and manage the account? You can open and manage the account online. You can only make one deposit when you open the account. You can’t pay in any more money after that.

When is interest paid? Interest is paid once a year, or monthly (when you’ll receive interest at 2.24%) and when the account matures.

Can you take money out before the term is up? No.

Is your money protected? Yes, up to €100,000 of savings with Ikano Bank is protected by the Swedish deposit protector scheme.

  • Vanquis Bank three year fixed rate bond pays 2.25% interest if you have interest paid once a year and 2.23% if interest is paid every month.

How much can you save? You can save between £1,000 and £250,000.

How do you open and manage the account? You can open the account online and manage it online, by post or phone. You have 30 days from opening the account to pay money in.

When is interest paid? Interest can be paid once a year – on the anniversary of opening the account – or once a month (see above).

Can you take money out before the term is up? No.

Is your money protected? Yes, up to £85,000 of savings with Vanquis Bank is protected by the Financial Services Compensation Scheme.

  • Masthaven Bank three year fixed rate bond pays 2.21% interest if it’s taken annually or 2.19% if it’s taken monthly. Masthaven Bank was granted a banking licence in 2016. However, it’s been lending as a bridging lender since 2004.

How much can you save? Between £5,000 and £250,000.

How do you open and manage the account? You can open and manage the account online.

When is interest paid? Interest is paid once a year on the anniversary of you opening the account (or monthly).

Can you take money out before the term is up? No.

Is your money protected? Yes, up to £85,000 of savings with Masthaven Bank is protected by the Financial Services Compensation Scheme.

  • PCF Bank’s three year bond pays 2.16% (or 2.14% if you have interest paid monthly or quarterly).  Axis Bank UK is a subsidiary of Axis Bank – which is India’s third largest bank.

How much can you save? Between £1,000 and £250,000.

How do you open and manage the account? You can open the account online or by post and manage it online, by post or phone.

When is interest paid? Interest is paid once a year.

Can you take money out before the term is up? No.

Is your money protected? Yes, up to £85,000 of savings with PCF Bank is protected by the Financial Services Compensation Scheme.

  • NS&I three year Guaranteed Growth Bond pays 1.95% interest for people taking it out from 6th March. It’s not in the top five but I’ve included its details as a reference.

How much can you save? You can save between £500 and £1 million.

How do you open and manage the account? You can open and manage the account online. You can only make one deposit into each bond, but you can take out more than one bond.

When is interest paid? Interest is paid once a year – on the anniversary of opening the account.

Can you take money out before the term is up? Yes. You will lose 90 days’ interest.

Is your money protected? Yes, whatever you have saved with NS&I is backed by HM Treasury. There’s no upper limit on the amount you can have.

Current accounts, easy access accounts and Premium Bonds

If you don’t want to save in a fixed rate account you can put your money into a variable rate savings account, a cash ISA, a current account or buy something like Premium Bonds.

  • Nationwide’s FlexDirect current account pays 5% interest on amounts up to £2,500. But you only get this for the first year (the rate drops to 1% after 12 months) and you have to pay £1,000 a month into the account.
  • Tesco Bank’s current account pays 3% on balances up to £3,000 – but only until April 1st 2019. You have to pay in at least £750 and set up at least three direct debits.
  • TSB Bank’s Classic Plus current account pays 3% on balances up to £1,500 but you do also get £5 cashback every month if you have two direct debits set up and £5 cashback a month if you use your debit card at least 20 times a month. The cashback is paid until December 31st. You have to pay in at least £500 a month and register for online banking.

If you want to put your money into an easy access savings account, you can earn up to 1.32% (at time of writing). You can find out about the best buy easy access savings accounts in my article.

If you want to buy Premium Bonds, the equivalent interest rate, which is the amount of prize money you might win if you have ‘average’ luck, is 1.4% and your chances of winning a prize are 24,500 to one. You can read more about Premium Bonds in my article called Premium Bonds – are they worth saving in?

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