Nat Savings Bond?

hoskins

Nat Savings have some kind of guaranteed bond that is linked to the S. Xchange I dont quite understand the jargon, I just wondered if it would be a useful place to put about 10grand

Milarky

This is a guaranteed equity bond [GEB] I think. There appear to be several disadvantages with them compared to either a deposit account OR a direct stock market investment.

Yes, you stand to get back some/most/all of the rise in a particular stock index or set of indices BUT it is a fixed term investment with generally no early surrender. You may not need the money today, or next year, but can you be sure of forgetting about it for up to 5 years?

Also: No dividends are paid [worth about 2-3% pa?] that you would get from a direct investment AND what you receive is 5 years rolled up interest. So 20% at least will come off the gain anyway. Had you bought the shares and they went up you could offset potentially any gain against your annual exemption [which is in addition to your annual income tax allowance]

Finally, as a lump sum investment - you only get the 'spot price', whereas if you invest directly on a regular premium basis you can acheive a 'moving average' entry price [aslo known a 'pound cost averaging'] which you can cash in at ANY time. The chances are, you can never exit from a 'fixed term' product at the optimum time, whereas the freedom to buy - sell - buy - sell - buy -sell [etc] direct investments means you can probably do better when it comes to trying to cash in on the gains made.

Reaper

There is an article on the main site which looks at this, and the National Savings one in particular. See here.