Corporate bond.Retail C

George&Ade

Hi.
First of all,my knowledge of savings and investments are very limited but would like some advice on the following please.
My wife was advised by Halifax to save a regular £250 per month which would go into a Corporate Bond Isa account(i presume this buys shares).
Have been trying to make sense of the statement shes received,and to be honest,it all seems too complicated for us.
Would it be best to cancel the agreement and put our savings somewhere else??
We cant afford to lose any of our savings so maybe a less risk account may be better.
We have both put £3,000 into mini Isas for the coming year.
Any help gratefully appreciated please.

Bazn

as a simple rule - if you don't understand it, then don't do it.

(not following that rule leads to problems like the mortgage endowment fiasco)

if you go to the NSandI website, you will see there are other tax-free places to put your cash, which are pretty to understand.

and as for the corporate bond fund, it invests in bonds, which are effectively loans to various companies, who then repay with interest.

dunstonh

My wife was advised by Halifax to save a regular £250 per month which would go into a Corporate Bond Isa account

Another good reason why you should not buy investments from a bank. 100% into a single fund (and a naff one at that).

i presume this buys shares

No it doesnt. Corporate bonds are not stockmarket investments.

Would it be best to cancel the agreement and put our savings somewhere else??

This money isnt savings. it is investment.

We cant afford to lose any of our savings so maybe a less risk account may be better.

Risk is not an on/off situation but a sliding scale. Even savings accounts carry risk. Its a case of looking at what you will eventually need this money for, the timescale and your overall position (including tax).

Savings accounts run the risk of not keeping up with inflation or basically running very close to it at best. So, you are not otaining any real growth.

Investing means you take some risks but you average out the ups and the downs with monthly payments and you can take a low level of risk if you desire. Low risk means low potential for gain but also low potential for loss.

We have both put £3,000 into mini Isas for the coming year.

You say you cannot afford to lose any of your savings but you appear to be able to afford £250pm on top of contributing the maximum to a cash mini ISA each over 2 tax years (possibly more). So, this suggests you should be able to take some risk as your budget can afford this.

The concept of what you are doing is right. The company you are using and how they have invested is wrong. Not a fault of the Halifax. They only operate tied insurance salesmen in their branches who can only sell their own products and are not authorised to give full and proper investment advice. They have stuck you in a single fund which is the norm for them.

The contributions should be split £125pm each as you should virtually always do ISAs split between you (in case one of you dies, you still have half the money in ISA. If its all in one name and that person dies, the whole ISA wrapper is lost). You should then use 4 different funds to allow your regular investment to be diversified as well as utilising whole of market funds which are better than the banks own funds.

andysdad_2

Corporate Bonds seem a good idea as part of a portfolio. Where I struggle is with management charges on many funds it seems you loose a lot of the increase in return, compared to cash savings accounts, with little reduction in the risk. Is there a good way to invest in CB's?

dunstonh

Where I struggle is with management charges on many funds it seems you loose a lot of the increase in return, compared to cash savings accounts

You pay charges on savings accounts. Historically around 1.2-1.5% although the credit crunch has lowered many of the banks net interest charge to around 0.9%.

The only difference is that with investments the charges are explicit. You can see them whereas savings accounts are implicit (you cannot see them).

Also, what do you mean by losing a lot in the rate of return? You can get bonds with yields at 10% now. So paying a 1% annual management charge on a 10% yield isnt bad. You are paying a near 1% charge on your savings and getting around 5-6%.

George&Ade

Thank you for your replies.
I think it may be best as you advised that better for us to spread the money around a little rather than have it all in one place.
Many thanks once again.

dunstonh

I think it may be best as you advised that better for us to spread the money around a little rather than have it all in one place.

You can do this via an IFA or going DIY and deciding for yourself. Take a look at Hargreaves Lansdown as they are good for DIY. If that scares you or you feel you need advice, then get an IFA to switch it over.

andysdad_2

Thanks Dunstonh
To clarrify my comment on losing on rate of return I have looked at Corporate Bond funds on H-L website and many of the funds seem to offer around 5-6% yield before charges so delivering a net 4-5% . I was using this figure to compare with the net savings account rates at 5-6%.
I am aware you can get higher returns on lower graded bonds but I would regard these as being a higher risk level compared to a Bank's Savings account. They may not be, but it is my feeling
I have seen in some of your previous posts you have commented on relative risk levels on funds posters have invested in (normally higher than they think) but I don't think I have ever seen one on your view of banks accounts and bonds on the same scale. Have you ever posted your complete scale of relative risk as it would be very informative.?
Cheers
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dunstonh

To clarrify my comment on losing on rate of return I have looked at Corporate Bond funds on H-L website and many of the funds seem to offer around 5-6% yield before charges so delivering a net 4-5% . I was using this figure to compare with the net savings account rates at 5-6%.

Yields have been unattractive and that is part of the reason the unit price has fallen back. However, that falling back has made them a little more attractive. Remember that performance charts do include the annual management charge. Some of the long term performance will also be in the unit price as well as the yield.

I am aware you can get higher returns on lower graded bonds but I would regard these as being a higher risk level compared to a Bank's Savings account.

They are all higher risk. This is why you diversify and do a spread.

I have seen in some of your previous posts you have commented on relative risk levels on funds posters have invested in (normally higher than they think) but I don't think I have ever seen one on your view of banks accounts and bonds on the same scale. Have you ever posted your complete scale of relative risk as it would be very informative.?

On a scale of 1-10 (which is the one typically used more often than not on here) cash would be 1. FTSE trackers at 6/7. Equity income 5/6, Corp bonds/gilts and bonds would go through 3 to 5 (with a couple of exceptions at the higher end).

With a £250pm contribution, as is the example on this thread) you could spread the contribtuion over corp bonds, uk other bonds, gilts and maybe £50pm into equity income. Remember that regular monthly contributions can take advantage of drops like this to buy units cheaper so the occasional drop is a good thing.

Bazn

dunstonh wrote: »

You pay charges on savings accounts. Historically around 1.2-1.5% although the credit crunch has lowered many of the banks net interest charge to around 0.9%.

The only difference is that with investments the charges are explicit. You can see them whereas savings accounts are implicit (you cannot see them).

sorry but i think this is a misleading comment and i'm not sure it is appropriate to explain it in such a way.

here's how i see it:

savings accounts have an interest rate and what you see is what you get. so if an account pays 6%, then 6% is what you get (ignoring bonuses etc, which are a different issue). so yes, perhaps the bank is earning around 7% by lending that money out, but at least they come clean with you and declare a simple savings rate that includes their margins.

on the other hand, most bond funds sneakily quote the full yield, and then take their annual charges from the capital, so a fund with a claimed yield of 6% actually only returns 5% or less once charges are taken into account. and they are riskier than cash deposits.

so i would say that although carges are implicit in savings account, at least they are "clean" and you know exactly how much your rate of return is.

dunstonh

sorry but i think this is a misleading comment and i'm not sure it is appropriate to explain it in such a way.

Comparing explicit charges with implicit is hard but savings accounts do have an implicit charge known as the net interest charge and that is around 1%.

but at least they come clean with you and declare a simple savings rate that includes their margins.

They are not coming clearn with their charges. You are given a rate after charges. With most investments you know the charges and those charges will not change regardless of performance. Banks are able to change their net interest charge to suit their requirements.