NS&I say their 65+ Guaranteed Growth bonds can be redeemed early for the loss of 3 months interest. If that's true does it make the 3 year bond better than the 1 year bond?
The interest rate on the one-year bond is 2.8 per cent gross and on the three-year bond is 4 per cent gross. Both are highly attractive and beat other savings rates available elsewhere by a big margin. However, you are right that the three-year bond gives a better rate after one year than the 1 year bond.
Interest is added on each anniversary with basic rate tax taken off. NS&I has confirmed that if a three-year 65+ Bond was cashed in after one year the interest payable before tax would be 3.01 per cent gross: 4.00 per cent- 0.99 per cent (90 day interest penalty). Paid net of basic rate tax this would be 2.41 per cent.
A spokesperson for NS&I says: "We are confident that, at a market-leading rate, savers who invest in the three-year bond will wish to take advantage of the full three years at that rate. Charging a penalty for early access is normal practice for fixed-term products, and we wanted to allow people to access their money if they need to.
"The penalty will be equivalent to 90 days' interest on the amount you cash in. Bear in mind that if you cash in all of your bond within 90 days of investing, you will get back less than you originally invested."
Danny Cox, a chartered financial planner with Hargreaves Lansdown says: "I am not a fan of people taking a longer-term view with money which might be needed in the short term. In this case choosing a three-year bond with the intention of only holding for a one-year term may give the saver a marginally higher return in this case. However, there is still a loss of 90 days interest which could cause a lower return if cashed in earlier than a year."
What happens if an NS&I 65+ bondholder suddenly does need cash (eg for acute illness), or dies, say 2 1/2 years before maturity? Can these bonds be sold or transferred to, or inherited by another 65+ age person?
NS&I says: "65+ Bonds can be cashed in without penalty after the death of a sole, or last surviving bond holder. All other circumstances are reviewed on a case-by-case basis.
"We only allow transfers in exceptional circumstances. Generally, we will give consent in the case of inheritance (although the recipient must be aged 65 of over to hold the bond) but will not give consent to any transfer which is by way of sale."
What IC readers say about NS&I 65+ Guaranteed Growth bonds:
"I would be surprised if inflation is less than 4 per cent in three years time, so I will not be investing in these."
"I won't be investing in them as my portfolio is worth £300,000 and it won't make much difference to the overall interest. I'd rather keep my cash Isas because they have the flexibility to convert to stocks and shares at a later date."
