Five questions on: Pensioner bonds

These are the new high-interest savings schemes, aren't they?

Yes. They're going to be launched in January and the Government has confirmed the interest rates that will be paid. The one-year bond will pay 2.8 per cent while the return on the three-year bond will be 4 per cent.

The rates look much higher than on any other savings accounts around. Are they?

They certainly are. "The rates are head and shoulders above the nearest competition, paying 51 per cent more than the average 'top five' one-year fixed rate, and 61 per cent more than the average 'top five' three-year fixed rate," said Anna Bowes of Savingschampion.co.uk.

How can I invest?

Only those aged 65 and over will be allowed to invest in the bonds, which are being offered through the government-backed National Savings & Investments. And then the most you'll be allowed to save will be £10,000 in each bond. But you can put that sum into both of the bonds, meaning pensioners can stash away £20,000 each in the high-paying accounts and couples can put £40,000 in between them.

Will I pay tax on the proceeds?

Yes, tax will be due on the interest, which will be paid at the end of the term.

When can I apply?

Some time in January. But once the date is known, you may need to move fast. The Government has set a £10bn limit on the bonds, which means, in effect, that if everyone invested the maximum £20,000, only half a million pensioners would get their hands on a bond. If the issue is over-subscribed then the bonds could be handed out on a first-come, first-served basis. If that happens, anyone applying by post could miss out as online and telephone applications would beat them to the punch. Online is likely to be the best way to apply.