The difference between bonds...

KC77

Hey everyone, hope you're all well.

I was just wondering if someone could please explain to me what these different bonds mean.

Single premium bonds

Guaranteed income bonds

National savings bonds

Thanks very much for any help.

Cheers.

cheerfulcat

The first two are insurance company products. The NS&I savings bond is the only one which actually is a bond, that is, a loan ( in this case, to the government ).

baby_boomer

The word "bond" is meaningless in the sense that it is used to cover a huge variety of vastly different financial products.

It is simply there to inspire trust in the potential customer.

In fact it merely spreads confusion and enables mis-selling to take place more easily.

dunstonh

The marketing men over the years have ignored the true meaning of the word bond and used it inaccurately so many times that it should almost be disregarded as meaning anything now.

KC77

The reason I asked is it's part of my college course. So any more info would be great. Thanks again!

free4440273

KC77 wrote: »

The reason I asked is it's part of my college course. So any more info would be great. Thanks again!

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dunstonh

single premium investment bonds and guaranteed income bonds are the same thing (although NS&I have a guaranteed income bond that means something different. Both use the life assurance tax wrapper. Their generic name is "single premium non-qualifying whole of life assurance" (assuming open ended version as most are today). So, you can see that the generic name is not exactly attractive to market. So over the years "investment bond" became the marketing term for them. Guaranteed income bond is just varient of an investment bond with a guaranteed income. Other varients include Guaranteed Growth bond or Guaranteed Equity Bond.

National savings bonds

NS&I are a product provider. They issue a range of products that include the term bond. Childrens bonds, pensioners bonds, fixed rate savings bonds, capital bond, premiums bonds etc. Whilst largely named for marketing reasons, they are close to the real meaning as CC says higher up as any money given to NS&I goes to the Govt as a loan to which they agree to repay a given amount.

Corporate Bonds (which are not on your list) tend to be the closest match to the real meaning. In simple terms, it is lending to companies by issuing a bond to which the company agrees to repay on a given date but will pay interest on in the interim.

You also get savings accounts that use the term "bond" but have nothing to do with bonds. Again, marketing men trying to make a "fixed term deposit" sound more attractive by calling it a "high income bond" or something similar.

Brooke Bond is tea. Basildon Bond is paper.

EdInvestor

Just to confuse things even more, the British term for the classic meaning of "bond" - as in Treasury bond in the US - where you get paid interest for lending money to the Givernment, is "gilt".