Almost four years ago, Chancellor of the Exchequer George Osborne announced plans to ease the pain that had been felt by older savers in the UK since the financial crisis. Osborne’s “Pensioner Bonds” were launched a few months later, in early 2015, and offered what were at the time attractive interest rates.[i]
The one-year bond paid 2.8%, while the three-year version returned 4% a year. Unsurprisingly given the paltry yields available elsewhere, Pensioner Bonds – or National Savings & Investments Guaranteed Growth Bonds, to give them their official title – were a big hit with the over-65s who were eligible to invest and they soon sold out.
The government’s figures indicate that almost 900,000 over-65s put a total of £9 billion into these bonds – holdings were limited to £10,000 per person – between January and May 2015. But over the coming few months, all those who took out three-year bonds will be facing a choice over what to do with their cash when it matures.[ii]
There are two options on the table: the money can be rolled over into new Guaranteed Growth Bonds, which run for a further three years but pay just 2.2% per annum.[iii] Or the bonds can be cashed in, and the money used to save or invest elsewhere.
Back in 2015, and with the benefit of hindsight, the 4%-a-year bond was clearly a good deal given that savings rates available elsewhere have been nowhere near as good in the intervening period. But with the base rate having risen for the first time in more than a decade late last year and inflation running way ahead of target, it is not so easy to say the same about the 2.2% which is on offer at the moment.
For people who are willing to take on a little more risk there is an alternative way. Peer-to-peer lending involves people making some of their capital available for loans to businesses or individual borrowers: Lenders and Borrowers are matched by alternative finance platforms such as FOLK2FOLK, but because this effectively cuts out the middle-man – that is, the banks – the rates available on both sides are much more attractive and provide a fair and transparent exchange.
FOLK2FOLK offer lenders annual interest of 6.5%pa on loans that are made to businesses in local communities around the UK. Loans are between 6 months and up to five years, and the capital is repaid at the end of the term. Lenders’ capital is at risk but to reduce the risk involved, all loans are secured against UK property and money can be lent among multiple borrowers in order to benefit from loan diversification.
A further advantage is that loans can be held in an Innovative Finance ISA, which means that any interest is free of income tax – the annual ISA limit is currently £20,000, which is also the minimum investment level at FOLK2FOLK, but ISAs can be added to in the new financial year which starts on April 6. FOLK2FOLK is now open for ISA transfers, meaning Lenders can move funds in historic ISA wrappers to FOLk2FOLK and continue to enjoy tax free returns.
For Lenders, the inflation-busting interest rate is only one part of the picture: being able to help support communities, especially those in rural areas, by offering much-needed finance to local companies is another significant benefit of participating in the Local Lending Movement.
For more information about becoming a Lender, please visit www.folk2folk.com/investing