£50k Investment Bond or Not ?

richard705

HI
My elderly father has Been offered
a return of £208.33 per month
from Alliance&Leicester Investment Bond
for £50k investment(10yr). is this a good deal
or is there a better place to put £50k that
would give him a better monthly pay out.
Were trying not to lock it away long term.

The_Fiddler_2

You will get about that in interest if you just put it in an A & L Direct Saver account.

dunstonh

That isnt how investment bonds work.

The 5% is a fixed withdrawal of capital with the investment bit subject to investment returns. As long as the returns beat 5% then there is no problem.

The tax wrapper may or may not be suitable depending on circumstances.

Buying it from A&L is very expensive way of doing it and an IFA could offer better terms and a better investment spread and lower charges and no need for a 10 year lock-in. Although there isnt a 10 year tie in with the A&L product either.

So, in answer to your question, yes there is better.

[Deleted User]

5% a year even if net seems pretty low. Halifax pays 6.52% (gross) for a 5 year term.

EdInvestor

Investment bonds are unsuitable for short term investment because there are usually penalties for withdrawal in early years.

If he wants something tax free, NS&I index linked savings certificates could accept 30k of the money, and he could put another 7k in a maxi ISA, perhaps into a couple of low risk property funds which would pay a tax free income of around 5%.

You don't mention what level of risk he is willing to take?Most IBs are mainly invested in shares.

dunstonh

5% a year even if net seems pretty low. Halifax pays 6.52% (gross) for a 5 year term.

Had he taken one out about a year ago on cautious investment spread he would be about 13% up now.

Its not 5%. The returns could be 10% a year or 20% or minus 10% or anything depending on the risk spread taken (which can range from virtually no risk to extremely high risk). The 5% is just the level of the withdrawal. Its a bit like going to the cashpoint once a month and drawing out the equivalent of 5%.

Most IBs are mainly invested in shares.

Apart from the ones that arent.

jamesd

Is your father also using his maximum S&S ISA allowance? Why is he choosing an investment bond as his tax wrapper? What is his approximate income - close to or under benefit levels, close to 20,000, close to or higher rate? Any inheritance tax or care fees concerns?

richard705

Thanks for comments so far.
Father has ISA's(he has max allowed for year) and some shares already set up. Basicly has his pension income every week for day to day living. sold
property he owned and is looking to invest in best way to boost monthly
income without locking initial capital away long term.

richard705

Thanks for comments so far.
Father has ISA's(he has max allowed for year) and some shares already set up. Basicly has his pension income every week for day to day living. sold
property he owned and is looking to invest in best way to boost monthly
income without locking initial capital away long term.
Investment bond offered by A&L staff as money is in savers account,
no problem with inheritance tax threshhold.

dunstonh

I made a response but the board timed out (again). Here is a shortened response.

Basically the advice is bad (if it was an IFA you could complain. As its a low skilled tied agent with a low quality product range without many unit trust options, you cannot as they only have to offer the best from their range). Its the wrong tax wrapper.

Unless your father likes paying more tax, more charges and having a naff investment spread, he shouldnt use A&L.

EdInvestor

richard705 wrote: »

Thanks for comments so far.
Father has ISA's(he has max allowed for year) and some shares already set up.

If he is already comfortable with owning shares he may like to look at this idea:

http://www.fool.co.uk/specials/2006/specials060208.htm


The High Yield Portfolio will pay around 5% in divi income with no tax to pay for those on basic rate.Prospect of long term growth in both capital and income to beat inflation.

The equivalent in funds is the "equity income" type, but as they take the charges out of the dividend income (it's very annoying losing 30% of your income in charges) you usually have to cash in some capital gain to top up the income.So more admin, but there's an annual 9.2k CGT allowance, so no tax problem there either.

Always use a discount broker such as https://www.h-l.co.uk or https://www.selftrade.co.uk for direct investment in shares and funds so charges are rebated.