Savings Bonds

High yield, low risk savings aren’t exactly ten a penny; but if you want security that doesn’t compromise savings potential, you’d best invest in a bond! There are three major bonds (007 fans might want to argue this point) and they’re available to online investors and e-savers in a range of permutations. (Corporate bonds and gilts are also available; some of which give lesser guarantees on the point of the sanctity of your initial stake! Consequently they’re not discussed here.) Bonds can give investors a huge return on their savings, without ever putting those savings in jeopardy.

Bonds are well named. When you invest in a bond you’re making a contract (or bond) with your online bank which stipulates that, provided you adhere to the terms of the agreement, you’ll cash in on the value of your initial investment plus interest at the end of the agreed term. That means there is no risk whatsoever of losing the initial investment. It’s absolutely, immutably safe. This in itself sets it apart form some other investment schemes where guarantees are about as flexible as interest rates.

The holy trinity of bonds is made up of fixed rate, variable rate and guaranteed equity bonds. Although quite different, all three are managed and treated similarly. That means they’re all seen (and should be entered into) as binding agreements or bonds. In making the initial investment, you’re also making a commitment to the bank to maintain the account over the specified period. During that time you’re unable to withdraw funds without incurring a penalty. But the good news is that you are guaranteed to get your capital back upon maturation of the scheme. The rate of interest that accrues to your bond will be determined by the type of scheme, the size of the investment and the dictates of the market. So invest it wisely in the first place and you’ll be sure of a nice surprise.

Perhaps the commonest bond is the fixed rate scheme. The rate of interest is fixed at the start of the scheme meaning that what you see at the start is exactly what you’re going to get. This makes for a secure savings scheme, perfect for prudent e-savers looking to build up a bit of capital. Fixed rate bonds are generally available in six month increments up to a total of three years, (although it will typically be for one year) but schemes are adjustable and online banks are adaptable, so find and set the scheme that’s right for you.

Variable rate bonds are different, but only insofar as the Bank of England base rate is used to determine the rate of interest that will accrue on the investment. This can be a good choice for smaller investments, in which case any falls in the interest rates will have a negligible impact on the initial sum. Because the base rate is variable, variable rate schemes are flexible; giving you the option to top up the account to take advantage of favourable rates or mitigate against unfavourable rates.

Guaranteed equity bonds are altogether different. In a sense the risks are greater, guaranteed equity bonds (or capital bonds) are linked to the stock market and will rise and fall in line with the FTSE 100. However, the same no lose mantra applies. If the worst happens: the markets crash and the interest is wiped out, you get your initial stake back. You won’t have lost a thing. It’s like gambling without the risks. Guaranteed equity bonds are ideal for e-savers with the means to put some money aside for the purposes of no risk investment gambling, rather than no risk investment saving.

Bonds give savers a different approach to online saving: all the advantages of high interest investment, with none of the risks. Stack the savings in your favour; whatever happens you can’t lose!