Sources of Safe Investments
Fixed Rate Bonds, Individual Savings Accounts and National Savings
Jan 3, 2009
The once bastion of safe investments, bricks and mortar, cannot be counted on to bring investors returns. Banks, such as the Bradford and Bingley, have been nationalised. Interest rates have fallen dramatically in an attempt to bring the economy to life. Where are the safe investments?
Individual Savings Accounts - the Cash ISA and Stocks and Shares ISA
An Individual Savings Account is a form of tax-free investment. Inland Revenue rules permit someone to invest up to and including £7,200 in a stocks and shares ISA or £3,600 in a cash ISA and £3,600 in a stocks and shares ISA.
Putting money in a cash ISA will entitle the saver to either a fixed or variable rate of interest. Always use an online interest rate checker to identify the best cash ISA rates. The tax-free nature of the investment makes a cash ISA very attractive for higher-rate tax payers.
When a saver thinks of a stocks and shares ISA they don't necessarily associate them with safe investments. However, those who are prepared to lock away funds for 5 years could benefit from a capital-protected FTSE tracker.
Fixed Rate Bonds
Fixed rate bonds pay investors a set rate of interest. The amount offered to investors will normally depend upon the term. Whilst bonds are very safe investments, compare the net rate of interest to National Savings Investments as the returns on fixed rate bonds are taxable.
National Savings Investments
- Premium bonds. Completely capital-protected, premium bonds don't pay a rate of interest. Instead they give investors a chance to 'win' money in a monthly prize draw;
- Index-linked savings certificates. Provides an investor with a return guaranteed to keep pace with the Retail Price Index. These are very safe investments, but tend to be more appropriate for periods where inflation presents a greater risk;
- Fixed-interest savings certificates. These work in a similar way to fixed rate bonds in the sense that they pay investors a pre-determined rate of interest. The main difference between fixed interest savings certificates and fixed rate bonds is that these are tax-free. Always compare the net rate of interest on fixed term bonds against the rate offer by fixed-rate savings certificates
- Income bonds. These offer savers a variable rate return each month, but it is taxable. There is no notice required for withdrawals.
Always utilise tax-free sources first, especially if a higher-rate tax payer. If investing for the long term, a great source of safe investments, from currently low FTSE levels, is the capital-protected FTSE tracker. Those who need access to their money should open a variable-rate cash ISA.
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