Savings and investments

There are so many different types of savings and financial investments that it is wise to seek advice.

National Savings products

Some of the least risky of investment options are those offered by National Savings, which raises money on behalf of the UK Government.

While investment returns are not necessarily spectacular and some involve tying your money up for long periods of time, they are nevertheless stable and in some cases tax-free.

They include National Savings Bank accounts and Savings Certificates and various forms of Savings and Income Bonds.

Individual Savings Accounts (ISAs)

ISAs represent a tax-efficient container into which to place cash savings and investments in equities, bonds and collectives.

Currently, the maximum subscription into ISAs is £10,200 in any one tax year. An individual can invest in two separate ISAs covering Cash, (maximum £5,100), and Stocks and Shares, (maximum £10,200 less what has been invested in cash).

Equities

Both cash ISAs and National Savings products are certainly much less risky than buying equities, that is to say investing in the shares of companies listed on a stock exchange. However, equities do offer an upside possibility that National Savings products do not.

You have the possibility of gaining not only a dividend - a proportion of the company's after tax profits distributed to shareholders - but also a capital appreciation. If the price of the shares goes up after you buy them then you have made, on paper at least, a capital gain.

The bad news though is that the value of shares can go down as well as up, which means you risk losing your investment if the price of the shares falls.

Collectives

That is why many people prefer collective investments such as unit trusts and investment trusts. In both cases an individual is able to invest in a basket of shares of different companies, that way spreading his or her equity investment risk.

In the case of unit trusts the investor buys a unit - part of a large fund which is itself invested in a variety of companies. An investment trust is a company listed on the stock exchange and whose business is investing in other companies. In both cases the investor is trusting his or her money to the judgement and skill of the fund manager.

Collectives can also invest in fixed interest instruments.

These include UK government stock, also known as gilt edged stock or "gilts" for short. Corporate bonds are also fixed interest instruments and both represent direct borrowing on the part of the issuer of the bonds. They are referred to as "fixed interest" because their cost of borrowing is fixed, while the price of the bonds themselves may float up or down depending on supply and demand.

Traditionally, fixed interest investments have been regarded as a safe option. But it is important to remember that not only do they fluctuate in price, but also that the investor risks that the issuer may not be able to pay the interest (coupon) on the bonds, or the principal when the bonds mature.

Armed with these explanations of what types of financial instruments there are to choose from, you can now seek advice as to which ones we recommend as best suiting their risk and reward profile.

Investment Bonds

Investment bonds are used to invest one-off lump sum payments. They allow access to a number of funds such as With Profits, Distribution and Property funds, as well as internal unit-linked funds. Many investment bonds now offer a greater range of investment through external links to unit trust/ OEIC funds.

One of the benefits is that they allow tax deferral on withdrawals from the policy and can be used in effective tax planning, particularly for higher rate taxpayers. 

Unit Linked Bonds
With Profit Bonds
Distribution Bonds