The downside is anyone looking to draw an income from the bonds, as although the interest is added annually it cannot be withdrawn before maturity and there is no monthly income option available. Interest is added annually but only paid out on maturity, so those opting for the three-year bond will have to wait until the end of the term to receive their income.
To further complicate matters the bonds are paid net of basic rate tax and fully taxable, but they do not offer the R85 form option that allows savers to receive the interest gross if they are non-taxpayers. Instead all tax will have to be reclaimed.
For higher or additional rate taxpayers who opt for the three-year bond, although the income will not be paid out until the end of the term, tax on that income will be due annually, so savers will need to pay tax on income they are yet to receive, within the term.
Unfortunately, although the bonds will pay highly competitive rates of interest, they are of course restricted to those aged 65 or older; they do not offer a monthly or annual income, and come with a fairly low maximum balance.
That said, there is no denying that the bonds offer savers a much-needed boost, and have already proven extremely popular. So much so that the NS&I website crashed on the day of launch and the phone lines continue to be busy.
NS&I and George Osborne protest that the bonds will be available for months; however with £1.153bn invested in the first two days alone – excluding the postal application figures – they are unlikely to be available for that long.
For months experts have been warning NS&I that demand may be extremely high given the record low interest rate environment we are still in. These warnings appeared to have been ignored, with insufficient measures in place to cope with the demand.
While some firms engaged in advising on the UK savings market have been urging savers to act quickly to take advantage of competitive rates of interest, it is clear to them that savers have been experiencing problems trying to apply for the bonds and are frustrated with the process.
Savers, especially those that rely on their savings income, have been hit hard in recent years, with interest rates plummeting to record low levels and incomes dwindling, as the number of cuts to savings accounts has continued to rise, even with no movement in the Bank of England base rate in almost six years.