Pensioner Bonds will pay market-leading rates of 2.8% on a one-year bond and 4% on a three-year bond from January 2015, the Treasury has revealed today.

Those aged 65 or over will be able to deposit a maximum of £10,000 into each bond, each of which essentially works in exactly the same way as a fixed savings account.

George Osborne first revealed that Pensioner Bonds would be available from state-owned savings bank National Savings & Investment (NS&I) in this year's Budget.

But the Treasury has today confirmed that the one-year bond will pay 2.8%, while the three-year bond will pay 4% (see our Pensioner Bonds guide for more info on these).

These rates are well above current fixed savings accounts best buys – which are 1.85% and 2.51%, respectively – over the equivalent periods.

If you're not planning to go for both bonds, it's best to go for the three-year bond. That's because even if you only want the money in for a year, the three-year bond pays more than the one-year bond even after accounting the 90 days worth of interest penalty (see our Pensioner Bonds guide for further analysis on this).

However, only £10 billion has been set aside for these products, which is enough for 500,000 people if all of those people make the maximum contribution. So pensioners will need to be quick to snap one up when they are released.

'I believe they will disappear with speed'

Martin Lewis, founder and editor of, says: "These rates are so far above the rest of the market, I believe these bonds will disappear at speed probably well within six weeks of launch.

"Sadly I don't believe it will stimulate the rest of the market though because these rates are just so far in excess of other equivalent products I suspect other providers will simply wait until it ends. Or at the very best they'll launch niche accounts for small amounts as loss leaders.

"There are two things anyone considering these bonds needs to know. First, the three year deal is the big winner here. That's because with both of these bonds you are allowed to withdraw money, in which case you pay 90 days' worth of interest as a penalty. 

"Do the maths and that means if you want the money in for a year, the one year account pays 2.8% but the three year account pays 3.01% after the penalty – so it still wins.

"And be ready with the cash so you can apply as soon as it launches to be sure the money doesn't run out, though I suspect on the launch morning NS&I's website will crash."

What are Pensioner Bonds?

Here's what else you need to know about the accounts:

  • They will be available from January 2015, although an exact date has yet to be announced.
  • You'll be able to save a a minimum of £500 and a maximum of £10,000 in each account.
  • You can put in cash yourself or jointly with one other person, who must also be aged 65 or over. This means you can put up to £10,000 in each of the two bonds – so a maximum of £20,000 per person – or £40,000 per couple.
  • Both accounts are designed to be held for the whole term, but can be cashed in early by paying a hefty penalty 90 days' interest.
  • The interest rate is guaranteed for the whole of the fixed term and is added on the account's anniversary.
  • Interest will be taxed in line with your usual tax rate and non-taxpayers must reclaim the tax from HMRC once it's paid (you can't fill out the usual R85 form).
  • All money in the state-owned bank NS&I is fully backed by the Government, meaning money put in there is as near to 100% safe as you can get.
  • You can apply through NS&I's website, over the phone or by post.

For further information and analysis on how good the deals are, see our Pensioner Bonds guide.

Martin Lewis
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Pension reforms

The Government has also recently unveiled a whole host of reforms to shake up the pensions market.

These include simplifying the State Pension from 2016 (see the What you need to know about the new State Pension MSE News story) and the abolition of the 55% pension "death tax" for some from April 2015 (see the Pension inheritance penalty tax to be axed MSE News story).

The Government will also introduce new flexibility for over 55s over how they withdraw their retirement savings from April 2015 meaning they'll no longer need to buy an annuity (see the Radical reforms to give greater access to pensions savings MSE News story).

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