The role of income bonds is commonly overlooked as a way to generate a passive income and receive better rates that your bank’s 0% savings accounts. An income bond involves an individual (rarely a business) putting in a substantially large sum of money, up to £500,000, with the intention to receive a monthly income, which by the end of the 3 or 5-year term could provide a return of as much as 7%.
Based on an example from the Basset & Gold website, customers can apply for a 5 year fixed income bond at the fixed interest of 5.52% which receives a fixed amount of £230 per month direct into one’s bank account, assuming an initial investment of £50k.
As with most savings investments, the longer you are willing to invest your money for, the higher the interest rate offered. Also by not withdrawing at any point is required in order to maximise your return.
Current rates are advertised as 3 Year Fixed Monthly Income Bond paying an annual interest at a fixed rate of 6.22% and the 5 Year Bond pays 7.46% p.a.
Being fixed means that the rate does not change during the term and remains constant. Plus, you are not charged any setup fees, administration charges, withdrawal charges or early withdrawal fees. This means that the provider like Basset & Gold is also relying on the interest returned to be high because they are taking a commission from the investment, not from you.
Firms are registered under the FCA as security trustees.
What Guarantees The Rates Offered?
Basset & Gold and similar providers will be investing your money into different business opportunities, notably asset backed loans such as property, corporate debentures and loans with real guarantees. Property is always worth something and even if the loan goes flop, there is always an opportunity to recover the debt with some security in place.
When reviewing investment opportunities, Basset & Gold will consider things like:
- Historical loan book performance
- Current loan book
- Corporate due diligence including accounting and legal sign off
Who is The Target Audience?
Income bonds are best targeted at pensioners or those in their 40s, 50s or 60s with disposable income and looking for a healthy return. There are specialist bonds for pensioners over 55.
Basset & Gold and Cash Bonds
Basset & Gold also have a ‘cash bond’ on offer, which provides increased liquidity and investors can enjoy an attractive annual interest rate that is paid twice a year at around 3.14%, while still having the availability to withdraw their investment at any time, receiving their entire investment back within 30 days. (Source: MoneyBullDog)
This is different to their traditional product which is based on receiving a monthly interest rate and has a duration of 3 to 5 years.
Other Savings Alternatives
Peer to Peer Lending
Peer to peer lending is one of the most well-known platforms in the UK with an industry value of £7 billion. It involves a company to act as a middleman between two other parties: one is the lender and one is the borrower.
The lender is a person who is looking to invest their money and receive a return of typically 6% or 7%, because they know it is better than the low saving rates currently offered by their bank. The borrower is a person looking to obviously borrow money at rates ranging from 3% if they have good credit and around 7.5% if they have bad credit (Source: Zopa).
The investor has the choice to invest in good credit or bad credit customers, realising that a better return is available for investing in riskier bad credit applicants. The peer to peer lender simply acts as the middleman to match up investors with borrowers, taking a profit in between known as arbitrage.
Real Estate Investing
This is similar to peer to peer, but instead of investing in the loans of other people, you are investing in property. There are the borrowers who are looking for property mortgages and loans and also the investors who can receive an interest rate of around 3.5% (Source: Landbay).
It is almost like crowdfunding for a property and getting people together to invest in an estate and share the profits when it is rented out or sold at a higher price. Again, like bonds, you benefit from the fact that it is a secure asset and will be able to provide a return regardless of market conditions.
Individual Savings Accounts (ISAs)
This is your very low-risk and low-return savings product offering returns of around 1.2% to 1.3% each year, offered by banks, insurers, asset managers, building societies and National Savings & Investments (NS&I). Any interest you earn on an ISA is tax-free and the variations include Fixed Rate ISAs which lock in your cash in exchange for a better rate, regular savings ISAs that offer an improved rate for people that pay in every single month, and finally stocks and shares ISAs.
This is a financial promotion. Capital at risk.
