Interest Bonds
You've worked hard to build up your money in a basic savings account, but where do you go from here to boost your money even further?
Savings vs. Interest Bond
Whilst savings accounts are best for short term saving with easy access to accounts and free withdrawals and deposits, their current low interest rates offer relatively little return. However, for a longer term investment opportunity an interest bond will offer a much higher return on interest rates compared to traditional savings accounts.
An interest bond can be viewed as a loan to a company, government, authority or bank. In essence, the individual purchasing or investing into the interest bond becomes the lender to the borrower and in return will receive the interest accrued. This may be paid in at regular intervals such as monthly or annually until the contracted term is finished.
Interest bonds is a broad term covering a host of different bond types. Their main principles are:
- There is usually a minimum deposit ranging from £1 to anything even over £50,000.
- There is also a set length of time in which you will be contracted into your bond usually ranging from 6 months to 10 years. This is known as the 'fixed term' of the interest bond.
- Depending on which type of bond and provider you are with, you probably will have no access to your savings during the arranged fixed term. It is important to invest money you can only afford to lock away. This could work in your favour by encouraging you to save.
- Early closure, withdrawals or deposits may not be allowed or result in an additional charge.
- Interest bonds offer relatively little risk and you should get the same original amount back when it matures.
The amount of interest you will receive will depend on the type of interest bond you invest in. For instance, a fixed rate interest bond has a set rate meaning you will revive a guaranteed amount throughout the term: you can be sure as to exactly how much you will receive by the end of your return so you can plan and organise your finances. Alternatively, you may wish to invest in higher yielding interest bonds which are exposed to the stock market. These interest rates will fluctuate accordingly but offer the opportunity to increase your investment income.
For advice on the best interest bonds for you and the most competitive rates, get savings advice from an independent financial advisor.
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