The U.K government allows you to invest between £15 and £25 every month without having to pay any tax on the interest earned or pay-out. This bond is available to everyone between the ages of 16 and 55 regardless of whether they have an existing ISA or not.
The program is scheduled as a ten year plan, meaning if you take it up in your teens or early twenties, you will have a substantial amount of interest to look forward to in your thirties. It is never too late to invest in savings bonds if you are already well into your forties or even fifties. The only difference at this age is that your guaranteed minimum pay-out will be less than that of someone who started investing earlier. In ten years' time, the lump sum accumulated could very well support your retirement plans or help with a grandchild's education costs.
Because it is invested as a long term project, money issued in bond is managed across a wide range of assets and is guaranteed to earn a good return. The interest rate earned on your bonds is fixed so regardless of the market performance, your earnings remain level throughout the years. Over the first two years or so, your minimum balance (guaranteed) is probably going to be less than the total payments made annually. But over the next years, this amount will grow substantially. Pay-out is guaranteed at the end of 10 years and it is wise to let the cash accumulate over this period and not try to withdraw it. If for instance you withdraw your money after two years, you will earn no returns.
Depending on how much profit the investment brings in, your savings bond will earn a bonus. These bonuses are given regularly and contribute to the long term growth of your saving bond. Bonuses are however not guaranteed and may not be there in future. However, this is more of an exception and you can count on enjoying a good number of bonuses spread across the years, plus a fat final bonus just before maturity of your bond.
Part of the tax benefits you enjoy is the inclusion of a life cover with the bond. The life cover given varies from one individual to another, depending on a number of factors. These include age, health and amount total amount invested. The younger you are, the higher your life cover will be. Similarly, the healthier you are, the more your coverage level will be. Should you die before pay-out for your bond is made, your beneficiaries or estate will receive your minimum cash guaranteed and all locked in bonuses in full.
Unlike bonds issued by corporate, tax free savings bonds issued by the government are guaranteed. Corporate bonds are not guaranteed and if the company goes bust, then your investment is as good as lost
I am interested in the world of tax free savings and investments in order to help families to achieve financial independence and make the most of their money.
If you are interested in reading more information about tax free bonds, savings and investment plans then please visit the following links:
Financial Service Authority
Scottish Friendly
Association of Financial Mutuals
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