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Wealth management, in terms of money, comes in four categories: for spending, for saving, for donating, and for investing. The first on the list, spendable money, should not surpass a certain percentage of your earnings, while most of the paycheck should be split into the latter three categories. Financial advice when it comes to building wealth will always tell you that saving is great—but is always best supplemented with an investment portfolio in mind. 

When you have money available to be invested, always do so, as this is the way that generates money in larger proportions. Saving money in the bank will garner growth, albeit a very slow one. The interest rates available from standard, easy-access savings accounts are very low, which is why investments will always be a person’s trump card to gain wealth. 

Investing In Fixed-Rate Bonds

If you have set aside a large enough amount of money to be invested, fixed-rate bonds are one of the easiest ones to invest in. They are a special type of savings account that has higher rates of interest compared to products that are easy to access. The only downside is that you have to be prepared to lock these investments up for a period of time, which usually fall anywhere between one to five, or even more years at a time to see growth. 

One of the greatest advantages that fixed-rate bonds have over other easy-access and ISA savings accounts is that these bonds offer a fixed interest rate compared to the latter two. This means that the moment you invest, you already have an idea of how much your investment will grow in the span of time the bond will be active. 

Additionally, you have a protective scheme set by the Financial Service Compensation Scheme (FSCS). The FSCS’ protective layer ensures that in any case a bank you have invested in fails, you can get up to £85,000 back from each institution. 

Tips For Investing In Fixed-Rate Bonds

The FSCS offers protection from each banking institution in case they fail, so it makes sense to split sums that exceed £85,000 between a number of banking groups. This way, your investments have maximum protection for all your savings. 

However, do remember that interest rates grow the sum of money you put into the bonds account. If you put in £85,000 and it grows at an interest rate of 2.5% for a period of three years, you’ll likely make upwards of £96,000, but that £11,000 will be lost when claimed. 

By depositing an amount below the maximum claim amount, your entire investment, including annual added interest will be covered. However, do note that the FSCS will not cover interest you have yet to earn—but once it has been added to the balance, it is automatically protected.

Are These Bonds Taxable?

All savings are taxable if the interest generated exceeds the annual tax allowance, including your personal savings allowance. This can be quite confusing at times when it comes to calculations, as the UK HMRC taxes interest once it is available for you to withdraw. 

So if you earn around £1,000 annually on interest from bonds that are paid into another account you own, these may be untaxable personal savings. If the fixed-rate bond’s interest pays out completely upon maturity at the end of the term and exceeds £1,000, you will most probably be taxed. 

Conclusion

Bonds are some of the best ways to invest your money, as they are not as volatile as the stock market and can be done by setting up an account with your local banks. All that is needed is a sum of money to invest and patience for it to grow over a period of a few years. While this may not be touchable initially, the payoffs when it grows are far too many!

Harry Robinson Wealth Management is the premium financial planning business in Cardiff that specialises in financial protection and insurance, pension planning, investment portfolios, estate planning, and more. Make sure your money is going in the right direction through consultations with our wealth management professionals for a brighter future. Connect with us today to find out more about how we can help you.

References

1. Financial Service Compensation Scheme. https://www.fscs.org.uk/media/press/2019/apr/higher-protection-limits/ 

Accessed on 27 August 2020

2. GOV.UK. https://www.gov.uk/apply-tax-free-interest-on-savings

Accessed on 27 August 2020

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