Guide to Saving Bonds
Savings Bonds & Guaranteed Equity Bonds
Last month we looked at the Pros and Cons of different Savings Accounts on the market and as promised are now following that up with the Pros and Cons of the two Bond options. Saving Bonds are way of ensuring a fixed rate of Interest over a given period, normally between 1 - 5 years. Guaranteed Equity bonds are a way of insuring your initial investment, but sharing in stock market growth, if it happens.
Higher rate of Interest than other Savings Accounts
Money is locked up, so forces disciplined savings
Ideal for a percentage of savings that you know you won't need for a fixed period
Can't add to the majority of bonds once bought
Interest rate volatility can make the long term rate quickly become uncompetitive
Guaranteed Equity Bonds
GEBs normally give 100% - 130% return on your money based on stock market growth over 2 – 5 year period
Historically stock market growth has been higher than that of conventional Bank / Building Society savings.
Insured access to stock market growth
If the stock market falls over the period, the money that you get back will be worth significantly less than when you put it in because of inflation
GEBs use the average price of the Stock Market level over the last year of the term, so benefits of growth in the final year are limited
No access to dividends (dividend growth should = 10% - 15% over five years)
Any Income will be taxed, where as direct stock market investment through ISAs