Are fixed rate bonds protected in anyway?

Daddy_Bear_2

Hi,

I'm currently acting as financial advisor for my parents and seek to find the best place to put their STR house funds while they sit out the market crash.

Are the really good 6-month and 1-yr fixed rate bonds now on the scene protected by the Financial Compensation Scheme or in any other way like regular savings accounts?

I'm guessing probably not as bonds generally carry some risk of default even if it's very small but if anyone can point me in the direction of where to find the answer I would really appreciate it.

Thanks
DB

Bernard_Coleslaw

I understand your concern as the word 'bond' is used to describe a wide range of investments, including some that are stock-market based where there is a potential for capital risk.

However, the bonds you're referring to are the sort where you simply put your cash in for 6, 12, 18 months and the bank or building society pays you a given rate of interest over that period until the bond matures. These are pretty much the same as a normal cash savings account and so are covered under the Financial Services Compansation Scheme (i.e. £35,000 per person, per institution).

Hope this helps.

Aegis

Daddy_Bear wrote: »

Hi,

I'm currently acting as financial advisor for my parents and seek to find the best place to put their STR house funds while they sit out the market crash.

Are you qualified as a financial adviser? If not, why act in this capacity, especially to family members? If you're not a professional adviser recommending strategies like this, then your parents have no legal recourse if any of your advice turns out to leave them much worse off due to being wholly inappropriate for their circumstances, while with a professional they could sue and he would be covered by professional indemnity insurance.

Have you made sure that your parents understand the risk associated with this? They have a good chance of never owning the property they are in right now again, and may never own a place at all if the markets recover and leave them stranded, especially if they are fairly near retirement. If nothing else this is going to require them to move around quite a lot for a couple of years, so do they fully understand the inconvenience this is going to cause?

There's some very good advice I've seen here before, which is "don't treat your main home as an investment". It isn't advice suitable for everyone, but if your parents are only doing this because they think they're guaranteed some profit, get them to have a long think about how much they're willing to gamble their main residence value by in real terms.

After all, it's not like you can just suddenly buy a property if the housing market turns around and surges upwards. It's a fairly illiquid market after all!

Of course, even if you are a professional financial adviser, it's likely that you should not get involved in such a business transaction with your own family anyway. If it goes wrong it could tear you apart unless you're willing to refund any losses caused if some of your advice goes sour.

Are the really good 6-month and 1-yr fixed rate bonds now on the scene protected by the Financial Compensation Scheme or in any other way like regular savings accounts?

They ARE ordinary savings accounts with a fixed term. The correct name for them is fixed term deposit accounts, and they are literally just savings accounts that the bank assures the rate for. The confusion here comes from the fact that the term bonds generally refers to fixed-interest investments like gilts and corporate bonds rather than term deposits. Using correct terminology, the difference is that bonds have a variable capital value but not interest rate, while term deposits have fixed rates and guaranteed capital (assuming the institution doesn't go bust outside the maximum compensation levels)


Please, please think very hard before advising your parents to essentially gamble their home on a variable market. If they already own their home and have no need to move, then ask them if they'd be happy to take out a mortgage and put the money in the stock market. If the answer is no (which is should be), then mention to them that what they're doing is actually HIGHER risk than that because they're putting all their investment eggs in one very volatile basket.

Hungerdunger

Forgive my ignorance, but what does "STR" stand for?

Aegis

Hungerdunger wrote: »

Forgive my ignorance, but what does "STR" stand for?

Sell To Rent.