Nearly half a million savers with one-year Pensioner Bonds will see the interest they earn drop from 2.8% to 1.45% when their fixed term ends unless they move their money, according to rollover rates published by NS&I. But you can get a much better rate elsewhere.

Officially known as 65+ Guaranteed Growth Bonds, Pensioner Bonds first went on sale on 15 January 2015, offering a market-leading rate of 2.8% for a one-year fixed term and 4% for three years.

Savers were able to stash up to £10,000 in each of the bonds – so a maximum £20,000 per person, or £40,000 per couple – and had until 15 May 2015 to do so.

But NS&I, the Government's savings arm, has now announced that once the one-year bond's fixed term ends, you'll either have to withdraw your cash or switch to a standard Guaranteed Growth bond with a much poorer rate. If you do nothing, you'll be automatically switched to a one-year Guaranteed Growth bond offering just 1.45% AER.

See our Pensioner Bonds guide for full details of how the scheme worked. If you're one of the 470,000 savers who took out a one-year bond, here's what you need to know.

Martin Lewis
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What are my options?

NS&I says it'll write to savers around 30 days before their bond matures to let them know they have three options:

  1. Reinvest into its standard Guaranteed Growth bond for one year (which offers 1.45% AER). This is the default option if you don't do anything.
  2. Reinvest into its standard Guaranteed Growth bond for two (1.70% AER), three (1.90% AER) or five years (2.55% AER).
  3. Cash in your bond – in which case you can then put your money elsewhere.

These rates will apply from 15 January 2016.

What rates can I get elsewhere?

You can get a much higher interest rate if you cash in your bond and look at other options. See our Top Savings Accounts for all the best-paying accounts, but in brief:

  • Fixed savings. The top one-year fixed rate deal is with United Trust Bank which pays 2.15% AER, the best two-year fix by First Save offers 2.4% and if you're looking to fix your money for five years, Secure Trust Bank offers 3.11% AER. All of these beat NS&I's offering. See more in Fixed-Rate Savings.

  • Current account savings. You used to need to avoid leaving cash languishing in a current account, but with some accounts now it's a different story. With Santander 123 you get 3% AER on balances of £3,000 to £20,000. Its £2/mth fee (£5/mth from Jan) is usually covered by the up-to-3% cashback you get if you pay bills via it. If you've £2,000 or less, the TSB Classic Plus account pays a whopping 5% AER. See Best Bank Accounts.

  • Cash ISAs. With these you don't pay tax on the interest. The top easy-access ISA where you can take out your money when you want without penalty is from The West Brom at 1.55% AER, though you need to save £15,000+ to get it. The Post Office pays a slightly lower rate at 1.51% AER on savings from £100. And a Coventry Building Society ISA can be opened with just £1 and pays 1.5% AER. See Cash ISAs.

  • Easy-access savings. These allow withdrawals. The top easy-access rate, though you'll need a big £25,000 to save, is with Harrods Bank which offers 1.51%. Smaller savers won't be able to beat the Pensioner Bond rate though – the best is 1.4% with the eSaver account from Skipton Building Society. See Easy Access Savings.
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How do I cash in my bond?

You'll need to notify NS&I at least two working days before the maturity date – otherwise the money will be automatically reinvested into the standard one-year Guaranteed Growth Bond.

If you're already registered online, you'll be able to notify NS&I around a month before the maturity date (so if you opened the one-year bond on 15 January 2015, you may be able to do this already). Otherwise you'll have to wait for the letter setting out your options – it'll then explain how to close your account by post. Unfortunately you can't do this by phone.

If you want to cash in your bond, the money will be paid into the bank account provided when you initially deposited the money. If your details have changed, you'll need to contact NS&I to update your details. NS&I adds that the money will be paid directly into the nominated account on the maturity date.

Does anything change if I have a three-year bond?

There's no change to savers who hold the three-year Pensioner Bond – though of course it's always possible that its interest rate will also drop when those bonds mature, so you'll need to check then.

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