Pensioner bonds may be selling like hot cakes but if you are looking for a regular income they are best avoided.
Last week the Government launched their vote-winning pensioner bonds. These fixed-term accounts pay an impressive 2.8% over a year or 4% over three years to savers who are over 65.
The aim of these accounts is to make life easier for pensioners who live off their savings and have struggled with the poor interest rate environment we've been living in for the past seven years.
The problem is that pensioner bonds essentially lock your money away for the length of the term - if you need to make a withdrawal, you'll be docked three months' interest.
That means they're pretty useless, unless you have cash lying around that you can afford to lock away for up to three years.
So, what are the best savings options if you want to be paid your interest monthly?
Calculate your pension income options
If you are prepared to shoulder a little more risk then you could opt to put your money with a peer-to-peer lender.
Crucially, these firms aren't covered by the Financial Services Compensation Scheme (FSCS) and, as you are lending your money out, there is a slim chance you won't get your cash back. Most have a compensation fund in place to prevent that happening, but these are not as failsafe as the FSCS guarantee.
Ratesetter also offers monthly peer-to-peer lending. Here you get an annualised rate of 2.6% and can access your money each month or choose to reinvest it.
Compare peer-to-peer accounts
High street accounts
Those savers who would prefer the peace of mind of saving with a recognised high street name could opt for Yorkshire Building Society's three-year bond. It pays a rate of 2.2% with the option of receiving your interest monthly.
Alternatively, Barclays offer a two-year Cash ISA paying 1.7% with the option of monthly interest payments. This is a better option than for higher rate taxpayers who would only receive a net rate of 1.3% with the Yorkshire Building Society account.
Go for a current account
You can get a better rate by avoiding savings accounts though. Opt for a current account and you'll get monthly interest payments and impressive rates. TSB pays 5% interest on balances up to £2,000 in its Classic Plus account. The interest is paid monthly giving you a regular income. But, you do have to pay £500 into the account each month.
Santander also offers a good interest rate on its 123 current account. If you balance is between £3,000 and £20,000 you'll receive monthly interest payments of 3%. There is a £2 monthly fee on this account though and you'll need to pay in £500 a month, but worth it for the interest.
Compare current accounts
Opt for an investment
Finally, if you are prepared to take on more risk you could opt for an investment fund that pays a monthly income. These are few and far between but do exist. They aim to deliver a high income level by investing in a range of shares, cash and bonds.
The Schroder Monthly High Income fund yields 5.9% or the Jupiter Monthly Income yields 5.1% historically. The benefit here is not only do you get that monthly income you could also benefit from capital growth too. For example, the Jupiter Monthly Income fund has returned 38.8% over the past three years (that's capital growth and income payments combined).
Hold these in an ISA and you'll also avoid paying interest on your income and any capital gains.
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