What are the new 'hotcake' bonds?

Press Association
What are the new 'hotcake' bonds?
What are the new 'hotcake' bonds?

Up to £10 billion has been made available for the new 65-plus guaranteed growth bonds which are now on sale.

What are the bonds?

They are lump sum investments, paying fixed, guaranteed rates, which offer savers the choice of either locking their money away for one year or three years. The one-year bond pays a rate of 2.8% and the three-year bond pays 4%.

Savers must have at least £500 to invest in a bond and a maximum of £10,000.

They are designed to be held for the whole term but can be cashed in early with a penalty equivalent to 90 days' interest.

Who are they for?

As their name suggests, they are for people aged 65 and over. This age group have seen their incomes squeezed particularly tightly in recent years as the Bank of England base rate has been held at a historic 0.5% low, pushing down on savings rates.

The bonds are for people who are happy to lock their money away for a period of time rather than having easy access to it. Interest on them is paid yearly, so they are not suitable for people wanting a regular income from their savings.

The bonds have no "right to cancel", so you need to be sure you want to invest before taking the plunge.

How do I apply for a bond?

They are available online at www.nsandi.com, by phone on 0500 500 000 or by post.

NS&I is encouraging online applications as the "quickest and easiest way to invest". But some people struggled to get on to the website immediately after it was announced that the bonds had gone on sale.

Are the bonds subject to tax?

Yes. NS&I will take off tax at the basic rate of 20% when it adds interest to the bond. Higher and additional rate taxpayers will need to declare the interest to HM Revenue and Customs (HMRC) and pay any further tax due. Non-taxpayers can claim back the tax from HMRC.

Why are the bonds expected to "sell like hotcakes"?

The returns they offer are very attractive in the current low-interest rate market. The best one-year bond on the open market is currently paying 1.85% and the best three-year bond is paying 2.5%, according to financial services firm Hargreaves Lansdown.

Danny Cox, chartered financial planner at Hargreaves Lansdown, said: "Now that a rise in interest rates looks even less likely this year, these new bonds look even more attractive and I expect them to sell like hotcakes."

He added: "I would be highly surprised if the £10 billion allocation lasts until the new tax year in April."

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