The government is to repay the nation’s remaining £1.9bn first world war debts and is considering clearing the “perpetual” bonds dating back to the 1720 South Sea Bubble crisis and the Battle of Waterloo.

The Treasury will redeem the war loan bond, which pays 3.5% interest, on 9 March 2015. Issued in 1932 by chancellor Neville Chamberlain to refinance debts run up during the war, the 3.5% bond replaced a gilt issued in 1917 under the slogan: “unlike the soldier, the investor runs no risk”.

The current government is keen to take advantage of low interest rates, and repaying legacy bonds allows it to issue new ones at lower rates.

Tony Nangle of Threadneedle Asset Management, the second-biggest holder of UK bonds, estimates the taxpayer will save £15m in interest repayments a year as a result of the redemption, equivalent to a debt reduction of more than £500m. The firm has been urging the government to refinance old debts to get a “no-brainer” windfall for the taxpayer.

More than 120,000 people hold the 3.5% war bond, making it the most popular government gilt. Around 97,000 of these investors hold less than £1,000, while almost 38,000 have less than £100. The country has paid around £5.5bn in interest on the war bonds since 1917, according to the Debt Management Office.

The Treasury is also looking at repaying the six remaining legacy bonds in its portfolio “when we deem it value for money to do so”. These “perpetual” gilts, which have no repayment date, include debt originally issued during the South Sea bubble, an early speculation frenzy centred on the slave trade that ruined many investors. Other perpetual gilts helped fund the creation of the Bank of England and bankroll wars against Napoleon.

In October the government announced it would pay off £218m in first world war debts taken out by Winston Churchill, in the form of a 4% consolidated loan issued in 1927 when he was chancellor.

Chancellor George Osborne described the latest war repayment as “a moment to be proud of”. He said: “It is a sign of our fiscal credibility and it’s a good deal for this generation of taxpayers.”

Some experts said they would miss these legacy bonds. “For those of us who’ve been looking at the gilt market for a long time, a little bit of magic has fallen out of the market,” said Moyeen Islam, a fixed income specialist at Barclays.