Gilt Question

Ciprico

My 2 kids were left some money which I put in a "bare trust", now with HL. After 6 years they have about £33k each, invested in Monks IT.

It's done very well, but as they are now only 2-3 years from university I am thinking I should move it to somewhere less risky.

I don't fully understand Gilts, but if my reading of the charts is correct I could buy the below, and be guaranteed .501% if held until July 2022.. (is this per year, or in total on maturity)

Is this correct ? is there anything else I should consider

Many Thanks



Issuer cpn Maturity

UK Gilt Trea 1.75% 2022 GB00B7L9SL19 1.75 9 Jul 2022


Life Price Yield
2 yrs 6 mths 103.306 0.501

from : https://www.fixedincomeinvestor.co.uk/x/bondtable.html?groupid=3

bowlhead99

The 0.5% is per year. It comes from the fact that the bond pays more than 0.5% per year on the £100 face value, but you are paying more than the face value to buy it.

Also, the price might be indicated at 103.306 but you might find it costs a little more than that to buy, reducing your effective return; whereas if you sell early for some reason you would find someone willing to take it off your hands for less than the market mid price (the higher and lesser amounts being either side of the 'bid - offer spread' around the mid point.

It is extremely unlikely that the UK government will default on its gilts, as they can just print more money to pay them off. So it's 'safe', but the 0.5% will quite possibly be lower than the rate of inflation so it doesn't do a great job of protecting the money in the interests of the child. They're not getting much of a return. You may find that if you take the money away from HL you can find a simple trust account at a bank paying 0.5% or more.

Certainly if you put the money in the names of each of the children, they would expect to be able to get more than 0.5% because childrens' accounts are famously high paying, compared to adult accounts. If you have not already maxed their Junior ISA allowances, that could use up almost £9k each either side of the upcoming tax year end, and cash JISAs pay well. As 16-year olds they do get some element of 'control' with a JISA, i.e. they could demand it be transferred to another JISA account, although they could not actually take it out of the JISA until they turn 18.