NU or Prudential Bond?

Newly_retired

I have a NU bond ( £10K )in the guaranteed fund which is about to reach its 5 yr guarantee and I was thinking of reinvesting it for another 5 yrs, at slightly reduced charges, with guarantee and no exit penalty.
Or I have been advised to start a new Prudential bond, similar type, for better returns.
I am a basic rate tax payer, under 65, with other savings and investments.
I have decent pensions, so I do not need the money at the moment.
Any opinions please?

dunstonh

If its only 10k, then you should whip it out and maximise your ISA allowances. (7200 available now minus any contribution already made in this tax year with another £7200 available in April. Staggering the investment may not be a bad thing either. Although you could put the surplus into UT/OEICs now and then "bed and ISA" it in April if you dont want to wait. (internal transfer from UT/OEIC into the ISA usually dont at little or no cost).

It would be damned hard to justify an investment bond on a £10k contribution. If you are getting advice, how is this person disregarded ISAs and Unit trusts as they are by far the best options for you.

Newly_retired

Thanks for your reply dunstonh.
I can only invest £3600 into equity ISAs as I already have a cash ISA this year. I have not invested anything into my Sterling ISA ( 4 funds ) this tax year. My ISA funds have lost about £3k this year, from £13k to £10K. My IFA did not suggest adding any more today when we spoke.
He has never suggested Unit trusts.
I have already got £20K with Prudential and he said there was currently a 1% bonus offer.
If savings rates were better I would take the £10K. I am not happy to see my capital eroded, but then who is? Yes I know the value of savings can be eroded too, but in this uncertain climate I am feeling even more cautious than I was about any sort of investment.

dunstonh

I can only invest £3600 into equity ISAs as I already have a cash ISA this year. I have not invested anything into my Sterling ISA ( 4 funds ) this tax year. My ISA funds have lost about £3k this year, from £13k to £10K. My IFA did not suggest adding any more today when we spoke.

In the ISA, there is no capital gains tax. In the bond, the income (dividends within the fund) are taxed the same. However the growth is taxed at upto 20%. So, using the £3600 for the ISA leaves you £6400. You can either hold back another £3600 (assuming you will do cash ISA again next year) or plop the lot in to the S&S ISA in April.

If you decide to invest it all now, then the £6400 goes into UT because again, an amount like that is not going to suffer CGT (as you have your personal near 10k p.a. allowance) but in the bond it is suffering upto 20%.

So, in the tax efficiency order, ISA is best, UT is next and Bond is last.

I have already got £20K with Prudential and he said there was currently a 1% bonus offer.

20% tax on a 5% return is 1%. So, that bonus wont take long to be cancelled out. Plus, I think Pru charge a higher AMC for the early years (depends on which version you use). So they usually end up giving with one hand and taking back with the other.

The only thing which is in Pru's favour is that the fund is cautious and its not available in UT form (or ISA). Sterling only have a gurantee on capital in the event of death.

Remember that the returns on the Pru funds will be dependent on investment returns in property, fixed interest and equities. So, whilst you have an element of guarantee on the Pru, you can always build the same investment spread on your Sterling ISAs.

Maybe spread the risk by phasing the investment rather than all in one lump.

There are various ways of doing this and to be honest, I wouldnt do an investment bond for £10k. Especially if the ISA hadnt been maximised. If you dont have the risk profile for a unit linked spread in an ISA and UT, then really you dont have the risk profile for the bond. (Prus WP fund is risk 5 on a 1-10 scale with cash being 1).

Have a think about your risk and remember that the Sterling ISA has access to fixed interest funds and a range of equity funds across the risk profiles. It doesnt have to be 100% equity. And think about phasing it so you average out the ups and downs.