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Savers who were among the hundreds of thousands who snapped up National Savings & Investments' (NS&I) three-year 'pensioner bonds' have been warned against being 'trapped by inertia' as the investments mature.
The bonds were the biggest-selling retail financial product in modern British history when they went on sale in January 2015, with the huge demand leading then-chancellor George Osborne to extend their sale until May.
That means the last of the three-year bonds, which paid a rate of 4%, are due to mature tomorrow.
Savers who do not make a decision about where to put their cash next will see it automatically rolled into a three-year NS&I bond paying a rate of 2.2%.
Sarah Coles, personal finance analyst at Hargreaves Lansdown, said that although there was ‘nothing innately wrong’ in letting the bonds roll over as ‘2.2% over three years isn’t a horribly uncompetitive rate’, savers needed to make sure they are finding the best home for their money.
‘If savers are going to make the right decision, they cannot let inertia be the driving force in their savings strategy,’ she said. ‘Savers need to avoid taking the path of least resistance, and focus instead on RATE: rate, access, time, and effectiveness.’
Coles set out the four areas that savers must focus on to ensure they make the best return from the most suitable product.
Savers with maturing bonds should shop around for the best rate, which Coles pointed out is a three-year bond from RCI Bank that is currently paying 2.31%. ‘It may not be the kind of rate to set the world alight, but it’s enough of a difference in rate to be worth the effort of moving,’ she said.
Access to the money should also be at the forefront of savers’ minds, as certain bonds may not allow access without incurring a penalty.
‘There are some easy access accounts which offer only a limited number of withdrawals in return for a higher rate, so consider when and how you may need to withdraw cash,’ said Coles.
Once you have decided what sort of access you need to your money, timeframe is an important consideration.
‘You may need the cash in an easy access account if you plan to use it imminently – where you can earn 1.31%, you may want to tie it up for one year at 1.86%, or you may decide you won’t need the money for five years, in which case you can earn up to 2.75%,’ said Coles.
Making your money work in the most effective way may mean dividing it up into separate pots. Coles said savers should not see their cash as a single sum of money, but instead take ‘a portfolio approach to make sure your strategy is as effective as possible'.
‘It means you only have what you need in easy access, fixed for the short term, and fixed for up to five years,’ she said.
‘Once you are looking to tie up the money for five to 10 years or more, if you are prepared to take more risk with your money, you can consider stock market investments.’
Coles said this would put your capital at risk but ‘over this time horizon, your money has more potential to grow than it would in a savings account’.