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Guaranteed Investment Bonds
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Scrapper
Posts: 43 Forumite
Just had the hard sell from my bank to get me to invest in one of their Bonds. Hook line is they are guaranteed - you get your money back after five years even if the stock market goes down. Sounds good? Read on...
The guarantee does not apply if markets fall by more than 30%! That is the very thing you want to be guaranteed against - a major fall. So much for the "guarantee".
Second hook line: there is no income tax to pay on the Bond. How come? The Bond pays no dividend: no dividend, no income tax to pay. What happens to the dividends paid by the companies in which the Bond is invested? The bank pockets them! Great! OK, I can cut your income tax to ZERO! Sign all your income over to me and - yup - you will pay no income tax!
And then they tell me that only 50% of the gain in the underlying investments will come my way when the bond matures. Guess who pockets the other half of the capital gain? You guessed it - the bank.
So I politely declined their kind invitation to invest in their Bond.
Or did I miss something?
The guarantee does not apply if markets fall by more than 30%! That is the very thing you want to be guaranteed against - a major fall. So much for the "guarantee".
Second hook line: there is no income tax to pay on the Bond. How come? The Bond pays no dividend: no dividend, no income tax to pay. What happens to the dividends paid by the companies in which the Bond is invested? The bank pockets them! Great! OK, I can cut your income tax to ZERO! Sign all your income over to me and - yup - you will pay no income tax!
And then they tell me that only 50% of the gain in the underlying investments will come my way when the bond matures. Guess who pockets the other half of the capital gain? You guessed it - the bank.
So I politely declined their kind invitation to invest in their Bond.
Or did I miss something?
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Comments
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Or did I miss something?
No you didnt miss anything. Retail GEBs are rubbish. Last decent retail GEB i saw was back in 1995. There is a good institutional GEB available at the moment which blows away the example you have given and I am actually considering it but that is a rare event.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
dunstonh, could you post details of that GEB that looks good?0
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dunstonh, in your esteemed view (quick ego masage to get in good books!) are there any reasonable income bonds around at the moment? I currently have £60k in an income bond which is only producing £880 per quarter and I do wonder if ths is the best I can get. I will be forever in your debt (figuratively) for advice?!I must go, I have lives to ruin and hearts to break
My attitude depends on my Latitude 49° 55' 0" N 6° 19' 60 W0 -
Nah, sounds spot on... Guaranteed Equity/Investment Bonds are generally considered to be rubbish!I am a Chartered Financial Planner
Anything I say on the forum is for discussion purposes only and should not be construed as personal financial advice. It is vitally important to do your own research before acting on information gathered from any users on this forum.0 -
Not to be touched with a bargepole in my opinion. Got stung with one of these types of product way back with a Bristol & West TOISA and after five years just got my money back and not a penny more. I lost five years of interest which I would have received if I'd opted for a normal type of savings account.0
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dunstonh, could you post details of that GEB that looks good?
The terms are
6 year timescale but can kick you out after every year. Its linked to FTSE100. Guarantee return of capital unless FTSE100 drops by more than 50%. It then becomes a passive old style tracker.
The thing that makes this one interesting is that if the FTSE is the same value or higher than entry point on anniversary, the plan matures and pays you a 16% return. If the FTSE value is lower then it rolls over for another year. At the end of year two, if the FTSE is the same or higher than the entry point then it matures and pays you 32%. If lower it rolls over for another year (adding on 16% again until final year where is finishes at 96%). At the end of 6 years, if FTSE100 isnt higher then your capital is returned. If its more than 50% down then its 1% for 1% reduction.
I look at that and it could well be quite useful for those that would invest in the stockmarket and if could well replace the UK part of their portfolio. I dont think any of us believe that 16% return on the FTSE is likely in the next 12 months but break even or small increase could well be the case and 16% (or 32% if it takes 2 years and so on) does seem interesting.dunstonh, in your esteemed view (quick ego masage to get in good books!) are there any reasonable income bonds around at the moment? I currently have £60k in an income bond which is only producing £880 per quarter and I do wonder if ths is the best I can get. I will be forever in your debt (figuratively) for advice?!
None come to mind. To be honest, with the one you have you may well be better off going high yield with low risk fixed interest unit trust funds. You may not get a capital guarantee but they dont suffer much of a swing and the yields look very attractive now. You can get over 8% in some cases. Now, if you only take say 5 or 6% then you could reinvest the surplus yield to buy more units and that could offset the slight fluctuations you get in unit value. It could also give you some inflation proofing which is always a risk when you look at income (you experience the equivalent of a stockmarket crash in real terms every 10 years if you have no growth and take all the interest/income. So you are taking a risk. A modification of the risk can result in a safer option even though its technically not capital guaranteed).I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
no dividend, no income tax to pay. .
Pretty certain that does not follow .. as I'm not aware of any standard GEBs that pay you the dividend?
If you make a profit it's either Income Tax or CGT .... depending on the T&Cs. NS&I are one of the leaders on 'tax free' products .. but their GEBs are subject to Income Tax.If you want to test the depth of the water .........don't use both feet !0 -
Many thanks dunstonh. Gives me another option to look at.I must go, I have lives to ruin and hearts to breakMy attitude depends on my Latitude 49° 55' 0" N 6° 19' 60 W0
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The terms are 6 year timescale but can kick you out after every year. Its linked to FTSE100. Guarantee return of capital unless FTSE100 drops by more than 50%. It then becomes a passive old style tracker.
The thing that makes this one interesting is that if the FTSE is the same value or higher than entry point on anniversary, the plan matures and pays you a 16% return. If the FTSE value is lower then it rolls over for another year. At the end of year two, if the FTSE is the same or higher than the entry point then it matures and pays you 32%. If lower it rolls over for another year (adding on 16% again until final year where is finishes at 96%). At the end of 6 years, if FTSE100 isnt higher then your capital is returned. If its more than 50% down then its 1% for 1% reduction.
I look at that and it could well be quite useful for those that would invest in the stockmarket and if could well replace the UK part of their portfolio. I dont think any of us believe that 16% return on the FTSE is likely in the next 12 months but break even or small increase could well be the case and 16% (or 32% if it takes 2 years and so on) does seem interesting.
Has someone got a link to this?0 -
Careful_with_that_Axe wrote: »Many thanks dunstonh. Gives me another option to look at.
I have advance notice of it so its not on their website yet. It will be shortly as issue 37. The website stops at issue 36. It is available from 15th Feb-7th April using an index price on 18th April.
http://www.premierassetmanagement.co.uk/Index1.htmlI am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0
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