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Savings bonds and the value of shopping around

POSTED: 1st July 2014
IN: Personal Guides
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There are many products available to people looking to put some money away for the future, one of which is the savings bond. With some attractive interest rates on offer, this is a potentially lucrative option for consumers with funds they are willing to lock away for a set period of time.

There are many products available to people looking to put some money away for the future, one of which is the savings bond. With some attractive interest rates on offer, this is a potentially lucrative option for consumers with funds they are willing to lock away for a set period of time. undefined

Savings bonds can offer healthy returns over the course of a few years, so it is important to ensure you get the best possible deal for you by shopping around.

How savings bonds work

Savings bonds allow you to invest a relatively large sum of money over a specified period of time, with the aim of gaining as much interest on your savings as possible.

They come with many advantages, arguably the biggest of which is a higher rate of interest than easy-access or notice savings accounts. You will also have peace of mind that your money will be gaining a known amount of interest for every year that it is invested, meaning you are protected from external interest rate fluctuations and changes in the financial services market.

People interested in opening a savings bond will have to invest a certain amount, with many accounts requiring an initial start-up sum of at least £1,000. It is possible that you will only be permitted to make a single deposit, so think about the amount carefully.

The more you put into your savings bond, the more you will receive in interest when the product matures. The same principle applies to the account's term - the longer you are willing to leave it untouched, the higher the financial gain.

It is important to bear in mind that once your money is invested, you will not be able to access it. Before opening a bond, make sure you are willing to lock the funds away for the agreed term. Some accounts preclude withdrawals entirely, while others will charge you for taking your money out early.

The importance of shopping around

When making any big financial decision, it is always advisable to shop around. The wealth of information available online and the technology available to 21st-century consumers means it has never been easier to scour the market for the best deals.

Assessing all options could prove particularly important when it comes to savings bonds, simply owing to the substantial financial benefits on offer.

If you have a fairly large amount to invest, say, £10,000, a difference of just a few percentage points in the interest rate on your account could translate into a healthy chunk of cash over the course of four or five years.

There can be some significant variations in interest rates, based on factors such as the term of your account, so make sure you take some time to find the product that suits your needs.

Other factors worth taking into account when comparing savings bonds include whether interest is paid on a monthly or annual basis, and whether you can choose between the two. You might also want to think about keeping up with the progress of your bond - do you have the capability to view it online or manage it by phone or post, and what is the best option for you?

All things considered, savings bonds are a good option for savers who have a lump sum they are willing to invest and leave untouched for a set term. Someone who is fortunate enough to have received a work bonus or some other windfall, for instance, might want to put some money away to improve their future financial security.

Bonds can also be particularly useful for people who want to use their savings to boost their income, such as pensioners. They are a safer alternative to potentially risky investment options such as putting your money into stocks and shares, where potentially greater financial benefits are on offer than with standard bank or building society savings accounts.

Consumers who want to start seeing the benefits of savings and investments, but are not willing to lock their money away, should look into some of the other products available. A good starting point is opening an easy access or notice savings account, many of which are cash ISAs offering you the benefit of tax-free savings of up to £15,000 in this tax year.

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