Personal Finance: It's a bond with a secure licence to save

National Savings has launched a bond that offers safe investment for pensioners. By Nic Cicutti

PENSIONERS SEEKING the safest product for their hard-earned cash are being targeted by National Savings, the Government agency which launched a new two-year fixed rate bond this week. The Pensioners Bond, announced by the Chancellor, Gordon Brown, in his Budget speech in March, will pay a monthly fixed income of 5 per cent gross.

The bond is designed to run alongside National Savings' existing five- year bond. This currently pays 4.85 per cent gross when held over the full period. Both bonds are available to anyone aged over 60.

The new two-year product is part of a bid by National Savings to reinforce its position as the leading provider of low-risk savings products to pensioners and other income-seekers. It follows reluctance on the part of some savers to commit themselves to a full five-year term, previously the only option available to pensioners.

Peter Bureau, chief executive at National Savings, says: "Together, National Savings Bonds and Income Bonds attract over 90 per cent of all money invested in low-risk monthly income products. We are now offering greater choice for those aged 60 or over. Our research tells us that many of them liked the certainty of the guaranteed regular monthly option provided by the existing five-year income bond. But others wanted more flexibility and would prefer not to commit their savings period.

"Now they can choose. Whichever term they opt for, they can be sure that their money is totally safe, with a fixed rate of interest that is guaranteed not to go down."

The new two-year bond will be available from 2 June. Like the existing five-year bond, income from the bond is taxable, although the income will be paid in full without deduction of tax at source. Minimum investment is pounds 500, maximum pounds 50,000 - or pounds 100,000 for couples. Although brochures with full details on the bond are available from post offices, it cannot be bought over the counter. Instead, customers must call a special number to invest.

Bonds can be cashed in by giving 60 days' notice (during which no interest will be earned on the amount being withdrawn. Or a bond can be cashed in without notice - but with a 90-day interest penalty. Monthly income is paid automatically. Unlike with a bank or building society there are no Inland Revenue registration forms to fill in for non-taxpayers. However, other taxpayers will need to declare the income on their tax return forms each year.

National Savings argues that the rates paid on its bond rank way above those available from its major high street rivals. For example, on a lump- sum investment of pounds 10,000 placed into a two-year Choices Bond from Abbey National, the gross rate payable is 4.12 per cent. Barclays Bank pays 4.55 per cent gross, Midland Bank 4.25 per cent, and Nat West 4.85 per cent. Alliance & Leicester and Bank of Scotland will pay 5 per cent, the same as National Savings, while Halifax Guaranteed Reserve and the Woolwich pay 5.03 and 5.13 per cent respectively.

Of course, a number of smaller institutions and local building societies will offer a higher rate than that available from National Savings, reaching up to 5.5 per cent. Moreover, in most cases they also pay this rate to income-seekers under 60.

The key argument National Savings will use in such cases is to stress the safety of its bond, guaranteed by the Government, as compared to its rivals. If that is your concern, the number to call is 0845 3005959.