Investment bonds can be incredibly lucrative, and it is important to learn all you can about them before moving forward. They are essentially life insurance policies that allow you to invest a certain amount of money in various funds. The amount of money that you get from will depend on how they perform as a whole. While this definitely isn’t a risk-free investment, there is a good chance that you can make some money.
Who Should Look into Investment Bonds?
The average investment minimum amount for investment bonds is around £5,000. Not everyone’s budgets allow for this, but it can be well worth it if you have the extra cash. Those who are patient and want a long-term investment will find that this can be a great option. You most likely won’t be able to access your funds for several years. You must also be willing to accept the fact that your investment’s overall value could depreciate significantly over time.
How it Works
Investment bonds usually demand a lump sum amount of anywhere from £5,000 to £10,000. While there is no minimum amount of time that you have to commit to an investment bond, you could suffer penalties if you take your money out too soon. It is highly recommended that you find a good financial adviser who can provide you with some good suggestions. The last thing you want to do is to choose the right fund to invest in.
The total return you get from these bonds varies depending on how well they do and when you choose to get paid. They can vary wildly over the years, so you need to accept the inherent risk that comes with this sort of investment. Some bonds will provide you with a guarantee for returns, but there is always the possibility that the counterparty won’t work out.
Types of Funds
There are two main types of investment funds that you should know about. The “with-profits” policies have been the most common option available over the years. These investments gain value on a yearly basis, and returns are guaranteed. One of the potential drawbacks to this option is that the value of the investment remains a mystery until it matures or you surrender.
The other option is “unit-linked”, in which all of the money you invest is held in an investment fund of your choosing. You have the option of selecting equities or property, depending on your personal preference. The great thing about this option is that you have total say over how your money is used in every single fund. These funds are broken down into units that you can purchase. The total value of these units varies based on how the investment fund as a whole is doing.
You will need to accept the risks that come with investment bonds before making a choice. If you want to minimize risk as much as possible, you should choose a with-profits fund, as your returns will be guaranteed. It is a good idea to select a bond that will let you put your money into many different funds so you can transfer your money around as you see fit. If you happen to die during the investment term, it could pay out a higher amount that the total value.
Getting Your Money
While it’s true that you can choose to take out all or just part of your money whenever you want, there might be a penalty you’ll have to pay. Sometimes this penalty is relatively small, but it could be quite substantial. It’s important to keep in mind that you might have to submit to a tax charge. You will be allowed to take out a certain amount every year, but you cannot exceed the pre-determined amount. It is possible to take out five percent of your investment each year without having to worry about any tax issues.
There is a chance that you will be charged if you take out your money before the bond has fully matured. If you have selected a with-profits bond, you could end up spending more in fees. If you decide to surrender within the first two or three years, it is likely that you will be charged something.
Should I Choose Investment Bonds?
The money that you invest in these funds will be safe, unless the insurance company goes under. This is one of the better options for those who want a good long-term investment with not a lot of risk. You will, however, want to spend some time looking over your options. There is always a chance that you could lose money on your investment, depending on the charges and how it performs. The more you learn about this option, the better off you will be.