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How to invest in Saving Bonds in the UK

How to invest in Saving Bonds in the UK 1

What are Savings Bonds?

Savings Bonds are interest-paying deposit products offered by building societies and banks and occasionally National Savings and Investments (NS&I) for a set term. A bond of this type is really a fixed term loan from a person to the provider (the bond issuer) usually in return for a higher interest rate than a person may get from traditional deposit accounts.

Applying for an Online Bond

To apply a person must:

  • Be resident in the UK for tax purposes and aged 18 or over. This does not include the Channel Islands and the Isle of Man. The account is not open to charities, trustees, clubs, associations, limited liability partnerships, partnerships, companies, nor may it be used for business purposes.
  • Be able to save a minimum of £500 for a fixed term.
  • Have a valid email address

One-off deposit

A person can only make one deposit to his/her Online Bond – one won’t be able to add funds to the Bond once it’s open. When a person applies, he/she can make a one-off deposit in the following ways:

  • From the nominated account (by Direct Debit)
  • By cheque
  • From an existing Post Office Money savings account, but this option is only available to existing customers applying for an Online Bond when logged into the online servicing site.

Interest on the Online Bond

When a person first apply he/she can choose whether the interest is paid monthly or annually:

  • Annual interest is paid on the completion of one year from the account opening.
  • Monthly interest is paid on the same day each month from the date the account was opened.

A person can’t change when your interest is paid once the account has been opened. He/she can choose to have interest paid to the Online Bond or to the nominated account. Interest is calculated at the relevant gross rate, on a daily basis on the total balance in the account at the end of the day.

Applicable Interest Rates

  • 90% gross/AER fixed for 1 year (annual rate); Monthly rates available
  • 10% gross/AER fixed for 2 years (annual rate); Monthly rates available
  • 30% gross/AER fixed for 3 years (annual rate); Monthly rates available

Making withdrawals and/or closing Online Bond

A person can’t make withdrawals from his/her Online Bond so one needs to be sure he/she won’t need access to the money during the fixed term. In exceptional circumstances, the Post Office may allow a person to close the Online Bond early. These are circumstances that are outside the control that a person could not have reasonably foreseen when you opened the bond. They are likely to cause you significant financial loss or personal distress, for example, diagnosis of a terminal illness or bankruptcy.

Post Office wouldn’t normally agree that buying a property is an exceptional circumstance unless not buying it would cause a significant financial loss or personal distress.

If a person needs to close the bond please write to the Post Office explaining why. They may ask for evidence or further information to help them decide whether the bond can be closed. They will normally charge a breakage fee to close the Online Bond early. This means a person could get back less than the amount originally invested.

At the time of Maturity

A person gets an email from the Post Office before maturity, showing the maturity date and options available

A person will have the following options:

  • A person can reinvest in another Online Bond and they often have following offers
  • Just log in and click ‘Reinvest Today’
  • Check the Online Bonds that can be reinvested in
  • Applying will not take longer than 2 minutes

Once the person has applied, savings will be moved into the new Online Bond at maturity and begin earning interest at the new fixed rate.

  • Post Office will automatically set up an Online Easy Saver (this is an online easy access savings account) and pay the bond money into it.

At maturity, a person will see new Online Easy Saver in account list at login.

In the event of death

  • Accounts held in a person’s sole name may be closed and the balance, together with any interest up to the date of closure is paid to the personal representatives.
  • An account held in joint names may, at the request or agreement of the surviving account holder, continue in the name of the deceased account holder and the surviving account holder.
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