View from City Road: Societies silent as granny rolls in

The reaction to the new granny bond from building societies was muted and a touch confusing to customers. The societies must surely have learnt their lesson from previous episodes with National Savings certificate issues, when they felt the Government was offering such competitive rates that it undermined private sector competition.

One result of their wails was that thousands of people rushed to the Post Office with their savings. It makes sense for the societies not to complain.

The granny bond does look a good buy. A gross return of 7 per cent on a five-year bond is slightly higher than expected.

There are no figures for the proportion of the 8.7 million people over 65 who are both taxpayers and savers. But the return looks competitive for both taxpaying and non-taxpaying pensioners and is matched only by the very best guaranteed income bonds (which pay interest annually).

It is also well above what a professional investor can get in the market, with the yield to redemption on a five-year gilt now under 6 per cent.