Retail bonds are proving to be a popular option for many investors, and you may well have heard something about them. If you are considering whether to invest in retail bonds yourself, there are a few pros and cons that you should be aware of to provide you with a more complete picture of what is involved in this type of investment.
Retail Bonds: Pros
One of the most tempting features of retail bonds is that they come with competitive rates of interest compared to savings accounts. Fixed-rate interest rates vary from bond to bond, but you may well find that you are able to enjoy a higher rate of return from investing in retail bonds than from saving your money in a bank account.
If you invest in a bond that lasts over five years, there are also tax benefits to consider. You could hold your bonds in an ISA and the returns that you gain will be tax free, making this another potential attraction.
It is also fairly simple to invest in retail bonds, and the process may be easier for people with little experience of investing compared to other types of investments. Once you have carried out your research and sought professional advice, you may be able to invest with relative ease and then enjoy the interest payments as they come through.
Retail bonds also allow you to invest in companies that you have an affiliation with. Perhaps you like their products and want to be involved somehow. Some bonds actually pay interest in the form of products rather than cash, which may be interesting for you to consider.
Retail Bonds: Cons
One of the biggest disadvantages to retail bonds is that there is no protection for your investment in the same way that there is if you save your money in a bank account. It is usually this extra risk that leads to a higher interest rate in the first place, so you have to accept this when you invest in retail bonds.
Also, although interest rates are often higher than savings accounts, they are often not that much better. You therefore have to ask yourself whether it is worth the risk making an investment.
Another thing to consider is that there are often minimum limits on how much you can invest in retail bonds. With a bank account you can invest however much you want to, but when you choose to invest with retail bonds you may find that there is a minimum investment of £2,000, and this may be more than you are comfortable investing.
Seek Advice on Retail Bonds
If you are keen to invest in retail bonds, keep the above pros and cons in mind before you make any decisions. You may also want to consult an independent financial advisor to provide you with advice about this form of investment so that you are fully aware of your options. Going into any type of new investment without specialist advice is never a great idea, so make sure you know what you are doing before deciding to invest in retail bonds.