What is an Investment Bond?

It isn’t always easy to plan for the future and deciding on the best financial options for you is no exception.

But if you’re on the lookout for a way to invest your hard-earned money with the potential for long-term growth, an investment bond could be a financial option for you.

Whether you’re saving for a big anniversary celebration, towards your retirement, putting something aside to help the kids through university, or planning on making a sizeable purchase a few years down the line, we’ve put together all you need to know about investment bonds to help you decide if they’re the right step for you in your financial journey.

What are investment bonds?

An Investment Bond is a one off investment, or lump sum investment, that you can make with the aim of growing your money.  Typically investment bonds will include an element of life insurance and whilst life cover might not be the primary reason for investing in an Investment Bond it is technically an insurance policy, which is why the amount you invest is sometimes referred to as the premium. Unlike the premiums you pay for your car and home insurance you don’t have to pay it every year and you’re much more likely to get them back.

While some investment bonds may run over a specified length of time, others such as our own Investment Bond have no fixed term. Our bond is created with your long-term financial success in mind, and offers the potential for growth over five years or more. Withdrawals are also possible should you ever need access to your money however they do come with some tax considerations which are explained more fully below..

Typically, the minimum lump sum investment is between £1,000 – £5,000.  With a Foresters Friendly Society Investment Bond, you can invest from £5,000 up to £150,000.

How do investment bonds work?

After you have taken out an investment bond, your provider will invest your lump sum in to their fund(s) with the aim of growing your money.

With-profits bonds (like our own Investment Bond) invest your lump sum in a with profits fund.  Within our fund, your money is spread across a number of different types of investments including property, equities, cash and UK government bonds, to help minimise risk and increase the potential returns. You won’t have to make any investment choices, our expert fund managers manage the fund on your behalf.  Dependent on the fund’s performance, each year we aim to add a bonus to your Bond’s value and when you cash your plan in we also aim to add a final bonus. The addition of these bonuses is not guaranteed.

How do you buy investment bonds?

Investment bonds are purchased directly from the provider or via a financial adviser. If you’re unsure as to the suitability of the Bond you should seek advice from a Financial Adviser. You may need to pay for this advice.

How are investment bonds taxed?

Investment Bonds may be taxed on withdrawal or when they are cashed in.  Making withdrawals will depend on the Bond you have opened and what the provider’s terms and conditions are.  Here at Foresters, we permit withdrawals to be made at any time. You can make one-off withdrawals of at least, as long as the remaining balance of your Investment Bond does not fall below £500. You can also make regular monthly, quarterly, half yearly or annual withdrawals, of at least £50, as long as the value of your Bond remains over £5,000.

You need to remember that making withdrawals could reduce your Investment Bond to less than its initial value and could also have tax implications.  What we mean by tax implications is that you can withdraw up to 5% each year of the amount you have paid into your Bond without paying any immediate tax on it. This allowance is cumulative so any unused part of the 5% limit can be carried forward to future years (although the total cannot be greater than 100% of the amount paid in).

However, if you decide to withdraw more than 5% per year and/or you cash in your entire Bond, we will calculate any gains on your money, and you may be subject to Income Tax. For higher or additional rate taxpayers this means that there may be an amount of tax to pay.

How safe are investment bonds?

It is important to consider that, like any investment, there can be risks involved with taking out an investment bond. Many bonds guarantee a minimum investment return however they may restrict the amount your money can grow by. 

In essence, there may be a risk that you  could get back less than you originally invested with an Investment Bond but the longer you hold the plan for the more this risk may reduce.  This will also be dependent on the financial conditions at the time when you come to cash the plan in.

You should also check that the investment is covered by the Financial Services Compensation Scheme (FSCS).

How are investment bonds different to stocks & shares ISAs?

Investment bonds are like a stocks & shares ISA in that you can invest a large sum of money into them – although in most cases you only pay one lump sum into a bond but you can then take money out as and when you want. Like ISAs, bonds follow tax-rules that set out how they work and when you might have to pay tax. ISA tax rules are more generous than those for bonds, so most people would only consider an investment bond once they’ve used up their annual ISA allowance.

Discover more about the Stocks & Shares ISAs at Foresters Friendly Society.

The Foresters Friendly Society Investment Bond

The Foresters Friendly Society Investment Bond aims to make the most of your money, offering the potential for long-term growth while being free from basic rate income tax or capital gains tax.

Why choose us?

  • Invest a lump sum of £5,000 – £150,000 with the potential for growth over 5 years or more.
  • Your money is invested in our With Profits fund, which has performed consistently well vs. comparable funds (Source: Barnett Waddingham Survey Dec 2019) and has the potential to grow thanks to annual and final bonuses.
  • Access to Foresters Extras – membership benefits – including discretionary grants
  • You can apply in joint names – perfect for couples.
  • You can make withdrawals from your Bond, ideal if you need to access your money.

All our plans are covered by the Financial Services Compensation Scheme to ensure peace of mind for our customers. 

It’s important to remember that you may get back less than you have paid in. Tax rules might change and depend on individual circumstances. Bonuses are not guaranteed and depend on the performance of our Order Insurance Fund and how we decide to distribute any profits. Member benefits are not regulated by the Financial Conduct Authority or the Prudential Regulation Authority.

Get in touch

To find out more, or to discuss the Bond further, please get in touch. Our UK based team of experts are on hand and ready to answer any questions you may have.

The content of this article is for information purposes only and does not constitute financial advice. We do not offer financial advice. If you’re unsure as to the suitability of a product you should seek advice from a Financial Adviser. You may have to pay for this advice.