The government's pensioner bonds, which become available next month, will pay interest at 2.8% for a one-year bond and 4% for a three-year bond, Chancellor George Osborne has announced.
He said the bonds, which were announced in the March Budget, would provide certainty and a good return for people who have saved all their lives and rely on savings in retirement.
'A key part of our long-term economic plan is to support savers and boost hardworking peoples' financial security at all stages of life,' Osborne said.
'That's why the government is introducing savings bonds for people aged 65 and over, and why we're confirming today that these bonds will pay the best available interest rates. They will give hundreds of thousands of older savers the certainty and comfort of a good return over the life of their investment.'
The bonds are only available to people aged 65 and over. There is a minimum investment of £500 and an investment limit of £10,000 per bond per person, although couples can hold bonds jointly.
Investment firm Hargreaves Lansdown said the rates were significantly higher than those available on the open market and higher than the rate at which the government can borrow on the gilt market making them a net cost to the Treasury.
Danny Cox, chartered financial planner at Hargreaves Lansdown, said he expected the pensioner bonds to 'sell like hotcakes'.
He added: 'There is of course a cost to the taxpayer from this government largesse, estimated in the Budget to be in excess of £300m. Some will think this is a small price to pay to give something back to the pensioner community, after loose monetary policy has devastated their fixed-income streams.'
Pensioner bonds are available through National Savings & Investments and are expected to benefit 1 million savers.
