Different Types of Bonds
Savings Bonds
This may be considered as a kind of savings account,
however since your investment is locked for a particular length
of time, savings bonds generally offer more competitive rates
than Notice or Easy Access Accounts. Penalties are often applied
to withdrawals, should the particular savings bond have provisions
for it. In general, savings bonds are best suited to investors
looking for a low-risk product that offers good interest rates
in exchange for limited access to their funds until the bond
matures.
Investments are usually at least £1,000 and come
with a fixed rate of interest. There is a requirement that the
holder be at
least sixteen years of age, otherwise the bonds may be held on
their behalf by a person who meets the age minimum.
There are two
kinds of savings bonds commonly available:
Stepped
Rate (or Escalator bonds)
These bonds guarantee stepped interest rates over a certain time
period, which means that the interest increases in set intervals.
Stepped rate bonds may offer an advantage over fixed rate bonds
with the same term, although this depends on the particular product.
Fixed
Rate
As the name implies, these bonds feature guaranteed fixed interest
rates for the duration of the investment, which often extends
from 1 to 5 years, or even longer for certain products. A higher
interest
rate often applies to longer terms. The money put into the bond
is usually locked and cannot be withdrawn in any amount until
the end of the term, or the bond’s maturity.
The advantage of
fixed rate bonds is the guarantee that your initial investment
will remain intact. However, this being the case, interest
rates are relatively lower compared to other types of investments
that involve greater levels of risk.
