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investment bond

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as isas now are rock bottom and we got three accounts with santander is it better to put any money we got spare into a investment bond paying after charges approx 5% and we are basic tax payers thanks

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  • AnotherJoe
    AnotherJoe Posts: 19,622 Forumite
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    That investment bond won't be without risk. And your money will be locked in for a time.
    So maybe, but maybe you'd be better off putting it in other high interest accounts.

    Got a link to the bond ?
  • jem16
    jem16 Posts: 19,404 Forumite
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    fender2000 wrote: »
    is it better to put any money we got spare into a investment bond paying after charges approx 5% and we are basic tax payers thanks

    I think you may have misunderstood this. An Investment Bond isn't a savings account. It's a tax wrapper that contains investments linked to the stock market which can go up and down in value. The 5% mentioned is not a guaranteed return but an amount which you can withdraw each year that would not trigger a chargeable gain and be subject to extra tax.
  • dunstonh
    dunstonh Posts: 116,696 Forumite
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    An investment bond is a tax wrapper. Just like an ISA or pension. You can hold the same investments in an ISA, bond or pension. So, the returns would be the same in all three. The only difference is taxation and charges. Charges can be the same across the lot nowadays. So, that is less of an issue. However, taxation is the key thing.

    You say you are a basic rate taxpayer. So, straight away, we can eliminate one of the reasons that makes the investment bond wrapper suitable. Higher rate (or above) tax payers who will later be basic rate (or lower) can have advantages with an investment bond. There is no advantage for a basic rate taxpayer unless you frequently use your capital gains tax allowances.

    The 5% rule is not a rate of return. It is the allowable annual withdrawal without triggering a chargeable event. If you exceed this, you create a chargeable event which triggers a tax calculation in that tax year. If the investments within the investment bond made 3% and you drew 5% then your capital value would go down.

    Nowadays, the investment bond wrapper is a niche wrapper suitable for a very small segment of the market. The trend is for people to move out of investment bonds as the changes in taxation suit other tax wrappers. For example, ISA beats investment bond in all but trust cases and non-resident. Pension is back in play now with the increased flexibility. You have unwrapped holdings after those all well.

    So, you need to think of the tax wrappers as being in a pecking order which can change depending on your scenario. Nothing you have said so far suggests a non-qualifying single premium whole of life assurance or a single premium endowment (to give them their full generic names) is suitable.
    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.
  • fender2000
    fender2000 Posts: 56 Forumite
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    thanks all
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