“Income bonds are a great way to set your lump sum working hard for you, with complete peace of mind, as there is no risk to capital. You literally cannot lose your sum invested, it carries a 100% guarantee! You do have to set your capital aside in the bond for an agreed time, but you can enjoy the interest paid into your savings account, with your lump sum returned at the end.”
Gareth Flanagan, Principle First Financial Advisers
Income Bonds – income with no risk to capital
Income bonds are one of the family of guaranteed investments, which offer a way of taking an income from interest on a capital sum invested, but with no risk to capital.
In other words, if you invest a lump sum in an income bond, you will be paid an income from interest on that capital, on a monthly or annual basis, and then your initial capital will be repaid to you in full.
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Your commitment under this arrangement is to agree to the limits and restrictions on withdrawing money from the income bond. This might typically require several months’ notice, it is therefore better to ensure that you are able to put your initial investment aside with confidence that it will not be required at short notice. Some products offer withdrawals in multiples of £1,000 only, with three months’ notice required, and also with the condition that the deposit in the fixed income bond not fall below £2,000 at any time.
Interest on your investment in fixed income bonds can be paid directly into your bank or building society account.
Where is my money in my income bond invested?
Fixed income bonds of this type are not linked to the stock markets, unlike for instance stocks and shares ISAs. The fixed income you will receive is based on the interest rates offered at the outset, and the amount you will invest in the income bond.
What is different about National Savings Income Bonds?
National Savings income bonds, also known as NS&I income bonds, offer a capital guarantee on your investment, but with a variable interest rate, so that while you know your full capital will be returned to you, your monthly income may rise and fall during the time your money is invested.
With National Savings income bonds, interest is paid gross and is taxable, and a bonus rate is paid for larger investments of £25,000 or more.
National Savings income bonds have a minimum purchase of £500 and a maximum investment of £1m, and there is no set term for the investment.
Points to remember about income bonds
When purchasing income bonds, there are three pieces of information that must be considered – the amount to be invested and set aside, bearing in mind it may not be accessible at short notice; the interest offered, which varies from product to product, so that it may be wise to ‘shop around’; and that fact that, the more cash you invest, the higher your income will be.
Fixed income bonds often offer the facility to top up your investment as you go. This may be subject to a minimum top-up amount, which might be £500.
In summary, it is important when considering income bonds to consider the minimum deposit, minimum withdrawal, and notice period required for withdrawal.
As with every savings and investment product, it is important to check the features, interest rates, restrictions and benefits of any investment product you are considering, taking the advice of a qualified independent financial adviser who can use a ‘whole of market’ approach to consider all products on the market to find the one that is right for you.
Are you interested in investing at no risk to capital, using guaranteed investments? Contact us now online to make an investment enquiry or ring our freephone 0800 678 5929
