What Are Savings Bonds?
A savings bond is a savings account in which your money is held on deposit by a bank or building society and earns interest.
The growth of your investment depends on the rate of interest attached to the savings bond.
Generally, the longer the term of the bond the higher the amount of interest that you can earn.
Savings bonds are different from normal savings accounts because in most cases you will agree a rate of interest to be paid depending on the length of the period you will invest into your bond.
This is usually between one and five years.
The saver will normally receive interest at the end of each year which will be credited to the account.
There are restrictions on how you can access your money that is invested in a bond.
Once the funds are placed on deposit savers are often unable to access their funds until the end of the agreed period without incurring a loss of interest.
This is because banks and building societies are looking for investors who will keep their money in the financial institution for an agreed period.
In return the saver will receive a better interest rate than they would for investing in an account that allows unlimited access to the funds invested.
One factor that anyone who is thinking about opening a savings bond needs to consider is how much money they can invest without requiring access to it before the fixed term ends.
There is little point in investing money that you will need to get hold of before the end of the term as the benefits of the savings bond, the higher rate of interest, will be lost.
Another factor to consider before you apply is whether you think you will need to borrow any funds whilst the money you are investing in a savings bond is tied-up.
The interest rate that you will have to borrow on a personal loan or most credit cards will be higher than that which you will earn through your savings bond.
So, it is better not to borrow at a higher rate, therefore you may want to have the funds available and decide against investing.
As a rule of thumb, it is better to repay debts than save.
Once you have paid off debts that charge you interest, then you can think about the best type of savings investments you can make.
The growth of your investment depends on the rate of interest attached to the savings bond.
Generally, the longer the term of the bond the higher the amount of interest that you can earn.
Savings bonds are different from normal savings accounts because in most cases you will agree a rate of interest to be paid depending on the length of the period you will invest into your bond.
This is usually between one and five years.
The saver will normally receive interest at the end of each year which will be credited to the account.
There are restrictions on how you can access your money that is invested in a bond.
Once the funds are placed on deposit savers are often unable to access their funds until the end of the agreed period without incurring a loss of interest.
This is because banks and building societies are looking for investors who will keep their money in the financial institution for an agreed period.
In return the saver will receive a better interest rate than they would for investing in an account that allows unlimited access to the funds invested.
One factor that anyone who is thinking about opening a savings bond needs to consider is how much money they can invest without requiring access to it before the fixed term ends.
There is little point in investing money that you will need to get hold of before the end of the term as the benefits of the savings bond, the higher rate of interest, will be lost.
Another factor to consider before you apply is whether you think you will need to borrow any funds whilst the money you are investing in a savings bond is tied-up.
The interest rate that you will have to borrow on a personal loan or most credit cards will be higher than that which you will earn through your savings bond.
So, it is better not to borrow at a higher rate, therefore you may want to have the funds available and decide against investing.
As a rule of thumb, it is better to repay debts than save.
Once you have paid off debts that charge you interest, then you can think about the best type of savings investments you can make.
