The government-backed National Savings and Investments website crashed on Thursday as the long-awaited pensioner bonds, which pay up to 4% interest, went on sale.
The bonds were announced by the chancellor last March as a sweetener to over-65s – who will be the only savers eligible to buy them – whose income has been squeezed by low interest rates on their savings.
The rates of interest are 2.8% for a one-year bond and 4% for a three-year bond. Up to £10bn has been made available to cover both the one- and three-year terms.
These are the best interest rates that have been available for savers in years and compare to an average 1.43% for a one-year fixed-rate bond and 2.02% for a three-year bond on the wider market, according to moneyfacts.co.uk.
Savers were told in 2014 that the bonds would launch in January but were not given a date and instead had to register via the NS&I website for an email alert. The bonds were launched at 7am on Thursday but the website crashed less than an hour later.
Pensioners will be able to put up to £10,000 into each bond per person per issue of each term. They will be able to invest singly or jointly with one other person aged 65-plus. In other words, pensioners will be able to put away up to £20,000 each, or up to £40,000 for a couple.
If everyone applying takes the full £20,000 allocation allowed, only 500,000 savers would get the bonds.
The NS&I attempted to stem the stampede for the bonds. Jane Platt, its chief executive, said: “We expect these bonds to be on sale for months not weeks and would like to reassure savers that there is no need to rush to invest.”
But savings experts said that they anticipate extremely high demand.
“They are the only beacon of light in an otherwise bleak savings landscape,” said Susan Hannums of savingschampion.com. “The rates are so competitive in the current market that when they were announced we thought the NS&I had made a mistake.”
Despite the fact that the Bank of England base rate has remained unchanged for almost six years, savings rates have continued to fall. The best rate on an easy access savings account is now 1.4% compared to over 3% in 2012, when rates began to plummet.
The slide started when the government introduced Funding for Lending, a scheme which gave banks and building societies easy access to cheap money and has meant that many of these institutions are no longer interested in savers’ cash to balance their books.
Patrick Connolly, a certified financial planner with Chase de Vere, said while the bonds offer market leading rates, “they are far from being the cash panacea which some might suggest”.
“These products cannot be held within a tax-free cash Isa and don’t pay regular income,” he said. “A three-year bond paying 4% per annum translates to 3.2% per annum for a basic rate taxpayer, 2.4% for a higher rate tax payer and 2.2% for an additional rate taxpayer.”
However, he said the bonds were a good option for the over-65s. “They do offer stand-out rates and complete security and so we will be advocating pensioner bonds to many of our clients who are able to lock their money away and want to achieve a better return on their cash savings.”
