Viable Alternatives to Pensioner Bonds
When Pensioner Bonds were first launched back in January of 2015, they were hailed by many as being the answer to low interest rates for those Over 65s who were eligible to apply. As it turned out, the solution was only a temporary one. While the one-year bond offered market leading rates of 2.8% at the time of launch, these rates were almost halved to a rate of just 1.45% when the one-year bonds matured earlier this year and NS&I announced that it was axing the scheme late last year.
With this new lower rate in mind you may well be asking yourself “What are the best alternatives to pensioner bonds and is it worth me moving my money elsewhere?” Here we’ll look at three viable alternatives to pensioner bonds that could help you to get a better return on your cash.
High Interest Current Accounts
High interest current accounts offer a good alternative for those with savings of £5000 or less and who regularly have funds flowing in and out of their current account on a monthly basis. Two of the most popular of these accounts come from TSB and Lloyds.
TSB Classic Plus Account
The highest rate currently being offered on this type of account comes from the TSB Classic Plus Account, which offers a rate of 4.89% on the first £2000 held in the account. This rate is not a temporary rate offer but a permanent one, though you will have to meet certain funding criteria to be eligible to get this rate. For instance, amongst other things, TSB ask that at least £500 be paid into the account each month and that you register for internet banking.
Club Lloyds Current Account
If you are looking for a higher rate on more than just the first £2000, then you could look at the Club Lloyds Current Account which offers improved rates of up to 3.93% on balances of up to £5000. Eligibility for this account requires a minimum monthly funding amount of £1500 or you can pay a £5 per month fee. The headline interest rate of 3.93% is also only payable if you have a balance of over £4000. If your balance is below £4000 then the interest rate payable tiers down accordingly.
Fixed Rate ISAs and Bonds
While average ISA rates may have fallen to record lows in recent months, it is still possible to beat the 1.45% rate payable on a pensioner bond if you are willing to tie your cash up for a 5 year period. The best Fixed ISA rates over a 5-year period are currently standing at 1.75% from United Trust Bank with a minimum deposit of £5000, or 1.60% with a minimum deposit of £500 from Skipton Building Society. Other terms and conditions will also apply, so it’s worth checking the requirements fully before subscribing your cash.
As far as fixed rate bonds go, to make it worthwhile moving your cash you will need to look at investing for a term of 2-5 years, with the current market leading 2-year fixed rate bond paying 1.55% interest giving no access to your cash during the term. If you are willing to look at a 5-year bond, then you can currently get a rate of 2% from Clydesdale Bank with a minimum £2000 deposit.
Lessening the blow
So, while the initial axing of pensioner bonds and the almost 50% drop in the interest rate payable on them might have come as a blow to savers when the announcement came, it’s good to know that there are other options available to help lessen the blow, meaning there is no need to keep your cash parked in a pensioner bond for any longer than is strictly necessary.