8 "Best" Investment Bonds To Invest In 2024 (+ Expert Tips) (2024)

Do you have spare cash burning a hole in your pocket? Invest your money today and start seeing a healthy return on your invested cash. But what should you invest in?

Investing in bonds could make you a very nice profit. Current investors in UK government bonds are in line for a bumper income, the best return since 2008.

This is a result of rising interest rates positively impacting savings accounts, with savings accounts now looking attractive to investors. Fixed-rate savings account interest rates are as high as 7% at some banks.

Bond issuers are reacting by raising their own interest rates to entice the investor away from using a savings account and investing in bonds instead.

Experts still view investment bonds as a clear winner over savings accounts, however, despite the superficial interest rates offered by savings accounts. Invested cash stands a better chance of keeping up with inflation and will lead to a better overall return.

In this article, we will explore how investment bonds can benefit you, advising you of the best investment bonds currently available across the UK. Let us help you to make informed decisions.

What Is an Investment Bond?

An investment bond is a loan taken out by a company, known as the bond issuer. The company gets money from investors who buy its bonds. In return, the investor will receive regular interest payments, sometimes known as coupon payments.

This is a long-term investment to make, aiming to increase the value of money in your bond over many years. The longer you invest your money, the bigger the yield will be.

Although, growth is not definite and the value of the investment may decrease. In comparison to other investments, however, fixed-rate bonds are considered to be a lower-risk investment.

Look out for the FSCS logo to ensure your investment is protected by the financial services compensation scheme.

The providers of the best fixed-rate bonds should carry the FSCS logo. The purpose of the financial services compensation scheme is to protect your investment if a firm fails.

How Do Fixed Rate Bonds Work?

Investment bonds work to raise capital for the company, or issuer. The investor can invest their savings into the bond and earn a regular interest payment, also known as a yield.

You will also receive the principal amount of the bond at the end of the term, once the bond has matured. This is the original amount of money you invested into the investment bond.

The original amount of money you invest into an investment bond will usually have a minimum investment value of $5,000. However, bond prices vary.

Investment bonds are subject to tight tax rules, however. Therefore, it is important to understand bond limitations before purchasing an investment bond.

You can search for a fixed-rate bond online option and open a brokerage account, aiming to look for the high-yield bonds currently available. Maturity options available include 2-year fixed rate bonds and 1-year fixed rate bonds, amongst others.

Can I Withdraw the Money Invested?

You can withdraw up to 5% each year of the original investment without having to pay tax.

Try not to think of an investment bond as a savings account. Many savings accounts would allow the owner of the money to make certain withdrawals. Your personal savings allowance ensures that interest up to £1,000 is not taxable.

However, bonds are effectively loans that you have given to a company. The money you receive from the bond is taxable past the yearly limit.

The 5% limit is cumulative and can be carried over to further withdrawals. You do not need to withdraw the full 5% in one withdrawal, however. Although, if a sum above the 5% yearly limit is withdrawn, 20% tax is payable.

What Are Coupon Payments?

Coupon payments are the annual interest rate paid on a bond that you will receive from the bond issuer. These amounts are calculated according to the interest rate offered and may be sent to you monthly, quarterly, biannually, or annually.

When investing in UK bonds, you will pay an initial outlay to the bond issuer. You will get this money back once the bond has matured and the bond term has expired.

At each interval, you will receive coupon payments. This is the interest your investment has earned and is not deducted from your original investment. However, the frequency of coupon payments will vary, depending on the investment bond and bond issuer chosen.

Are There Different Types of Investment Bonds (UK)?

First, decide if you want to make a short-term investment or a long-term investment.

A short-term investment will allow you to access the initial amount invested after a short time, such as 2 years. A long-term investment may provide that you do not access your cash for 5 years or even 10 years.

The best fixed bonds can be split further into corporate bonds and government bonds, however.

Corporate Bonds

Investment-grade corporate bonds are bonds issued to a company from an investor, or bond issuer. You are effectively lending money to a corporate business so it can raise capital.

You will receive regular interest payments until the bond matures. After this date, they will return the initial amount of money you have invested in the investment-grade corporate bond.

Your regular interest payments are known as ‘coupons’ and may be paid annually, semi-annually, or quarterly. Each company will operate differently, however, so ensure to find out when you should expect your regular payments.

The company will pay a fixed rate bond percentage for every coupon they pay, making this a fixed-interest asset.

For example, the company may pay 5% of the original investment to the investor. If you invested £1,000, you will receive a coupon valued at £25 at regular intervals. You will then receive the full £1,000 once the bond has matured and the term has expired.

Government Bonds

Government bonds are loans given from you to the UK government. The government is the bond issuer in this instance, whilst you are the bondholder.

UK government bonds are also known as gilts and are considered a tax-efficient option for high-earning savers. The purpose of the government bond fund is to raise money for new infrastructure.

However, government bonds are considered to be less risky than corporate bonds. This is because whereas the UK economy is established, companies could become bankrupt on short notice.

As a fixed-interest asset, you will receive regular coupon payments in the same way as a corporate investment bond.

So, if the government bond coupon is set at 5%, you could receive a £500 coupon with a £10,000 investment.

Whichever investment bond you choose, always make sure to look for the FSCS logo so you know your investment is protected by the financial services compensation scheme.

At a Glance, Investment Bonds Pros and Cons

To gain a clear picture of the best fixed-rate bonds and the positives and negatives of this investment product, take a look at this section.

Check out our expert review to find you the best investment bonds, acquiring as much knowledge as possible before investing.

Pros

✔️ Withdrawals — whilst some investments do not allow withdrawals at all, investment bonds do allow you access to your own money. You can withdraw a 5% limit each year, which can be accumulated to withdraw a larger amount.

You can also withdraw more than this amount whenever you like, although a 20% tax rate is applicable.

✔️ Long-term investment — many people invest in bonds to make a long-term investment. For example, you may make a 10-year investment whilst still generating regular coupon payments.

This investment could be made for future retirement or for your child’s future.

✔️ Returns — the money you have originally invested will be returned to you when the bond matures. You cannot lose the money you have invested in the bond, unlike stock investments which can deteriorate.

The coupons you receive will also reflect the issuer’s fixed interest rate so you know how much to expect at each interval. Yields are much higher than they were previously, with large asset management groups rushing to invest in bonds once more.

✔️ Less risk — The value of the best fixed-rate bonds can fluctuate and the interest paid can rise and fall. However, investment bonds are still considered to be a low-risk investment, offering less volatility than other investments such as stocks.

Cons

❌️ Tax — tax applies in circ*mstances outside of the 5% cumulative limit, such as higher rate taxpayers being subject to 20% tax on the gain. Additionally, the tax rules surrounding investment bonds are much more rigorous than ISAs.

❌️ Lack of control — your investment may be used to fund a project that you do not agree with, either ethically or financially. This applies to both corporate bonds and government bonds. However, you have zero control over the decisions of the bond issuer and they can use your investment as they like.

❌️ Fixed return — whilst this is also a benefit of investment bonds, receiving a fixed return when the bond matures also provides limitations.

Other investments may see the money you originally invested grow exponentially, whereas your investment bond amount will remain the same.

❌️ Higher investment amount — depending on the best fixed-rate bonds you want to invest in, you might need to find a large sum of cash. There are different bonds available, each with a different price tag, so shopping around is needed.

However, the most sought-after investment bonds will cost you a lot of your savings.

Best Investment Bonds — Reviews

Gathering data about the best investment bonds can be tricky as some investments must be organised through a specialist broker.

Here are the top 8 best investment bonds (UK):

1. iShares GBP Ultrashort Bond ETF — Great for Rising Interest Rates

• Tailored for short-term investments
• Perfect when interest rates rise over a short period
• Current bond price: £100.93
• Trailing yield: 0.39%
• Total expense ratio: 0.09%
• Net assets: £1,073,086,888

Visit iShares

iShares GBP Ultrashort Bond ETF holds net assets of £1,073,086,888 and is positioned across 131 holdings. This bond offers an AA MSCI ESG Fund Rating and scores 7.77 for quality.

It is the perfect investment bond for short-term investments, capitalising on sharp interest rate rises. This is a fixed-income asset that was initially launched in 2013.

The current bond price to invest is £100.93, with a total expense ratio of 0.09%. The trailing yield current measures 0.39%, calculated by totalling the coupon rate divided by the bond’s market price.

Confidence in investments such as iShares GBP Ultrashort Bond ETF is rising, offering a large period of bond stability.

2. RCi Bank 5-Year Fixed Rate Account — Great for Growth

• Earn 5.65% AER gross variable
• Receive coupon payments monthly or annually
• Initial deposit: £1,000
• Maximum deposit: £1 million
• Make unlimited deposits in the first 14 days
• No withdrawals before the fixed term ends

Visit RCi Bank

The RCI Bank 5-Year Fixed Rate Account is a great investment if you are aiming to grow your funds.

You can earn 5.65% returns from investing in this bond, receiving your interest payments either monthly or annually. Therefore, when you deposit £1,000 into the RCI Bank 5-Year Fixed Rate Account, you could earn £1,325.65.

Your initial deposit must be at least £1,000. You can top up your deposit by any amount during the first 14 days of your investment. However, the maximum your deposit can reach is £1 million.

You cannot withdraw any of your investment within the 5-year term limit, however. Whilst this is a drawback for short-term investors, long-term investors will capitalise on the interest gained.

3. NS&I UK Premium Bonds — Popular Choice for Bond Investment

• Minimum deposit: £25
• Maximum deposit: £50,000
• Annual prize fund rate: 4.65%
• Interest is not paid on a fixed rate
• Bondholders are entered into regular prize draws
• The biggest prize available is £1 million

NS&I UK Premium Bonds are investments with a difference. First implemented in 1956, Premium Bonds were designed to encourage people to save again following the end of the second world war. The minimum deposit is as little as £25 and as high as £50,000.

Premium Bonds are owned by around 23 million people in the UK. Instead of receiving small, regular coupon payments, investors are entered into a prize draw, potentially to win large sums of cash.

The chances of winning the Premium Bonds draw is relatively reasonable. Per month, 27,295 bonds win £100 payments, whilst 1,679 bonds will receive £1,000 payments.

Larger prizes offered include £50,000, of which 10 bonds will each win each month, whilst 2 bonds will each bank the jackpot £1 million prize. Overall, the chance of winning any prize is 1 in 80,532.

4. HM Treasury Gilt 6% Treasury Stock 2028 — Great for High Coupon Payments

• Current bond price: £107.30
• Running yield: 5.604%

Visit HM Treasury

The UK 6% Treasury Stock 2028 is a great investment for higher coupon payments. Offering a 6% interest rate, this bond pays the highest coupon rate of all treasury gilts available.

The UK government is rated AA for their credit, not the highest score possible but certainly one of the highest. When purchasing a bond, you will pay £107.30, benefitting from arunning yield of 5.604% to generate a healthy return.

In comparison to the US and German economies, you can expect a high yield from UK government bonds. UK government bond yields are surpassing both the US and German economies to offer investors a very generous rate.

5. Abrdn Ethical Corporate Bond Fund — Great for Ethical Investors

• Aims to meet ethical investment policy
• 1.01% ongoing charge
• Yield: 3.49%
• Quarterly coupon payments
• Purchase price: £45.52
• Minimum investment: £100

Visit Abrdn

Representative example — when investing £5,000 and experiencing a growth rate of 5%, you could receive a lump sum of £6,381.41 after 5 years. However, charges may be deducted from this amount.

Offering an investment for ethical individuals, the Abrdn Ethical Corporate Bond Fund provides a yield of 3.49%. This is a reasonable return on your investment.

This investment requires a minimum investment of £100, with each bond priced to purchase at £45.52. There is an ongoing charge of 1.01%, with the fund size of the bond surpassing £407.18 million.

Abrdn has recently acquired a series of fund mergers following a comprehensive review, demonstrating that the company is making positive steps to grow. Abrdn presents a good opportunity for investment.

As an ethical investment, Abrdn aims to meet ethical investment policies and to meet sustainable outcomes. Sustainable investing is becoming hugely popular so tap in on this trend today.

6. Amundi ETF Lyxor Core UK Government Bond ETF — Great for High Coupon Payments

• Current bond price: £100.69
• Bi-annual coupon payments
• Yield: 4.68%
• Ongoing charges: 0.05%

Visit Amundi ETF

The Lyxor Core UK Government Bond ETF is a good choice for receiving high coupon payments.

The current bond price you can expect is £100.69 inside an asset fund of £789.27 million.

Coupon payments are made twice per year, with a current yield of 4.68% expected. This is a solid yield and a sign of a good investment. There is an ongoing charge of 0.05%, however, although this is minimal in comparison to other investment bond charges.

7. Sheffield Mutual Investment Bond — Great for Long-Term Investment Plans

• Minimum investment: £1,000
• Maximum investment: £150,000
• Guaranteed minimum return of 3% after 5 years
• No withdrawals are allowed

Visit Sheffield Mutual

Representative example — when you invest £1,000 into this bond, you will receive up to £1,400 after 5 years. An investment of £100,000 will provide a return of £140,000 after 5 years.

The Sheffield Mutual Investment Bond is a good choice for savers who want to invest over the long term. Offering a guaranteed benefit of at least 3% after 5 years, your savings can effortlessly grow.

You can deposit an investment of as little as £1,000 to a maximum of £150,000, tailoring what value investment you want for the future.

However, during the maturity period of the bond, you cannot make any withdrawals. Therefore, you cannot withdraw any of your investment within 5 years. Furthermore, Sheffield Mutual can guarantee that your investment will be invested ethically.

8. HSBC Onshore Investment Bond — Great for Long-Term Investments

• Minimum investment: £5,000
• No maximum investment
• Regular or one-off withdrawals are available
• No hidden costs

Visit HSBC

The HSBC Onshore Investment Bond is an investment bond with no maximum deposit amount. The minimum you can deposit is £5,000, however.

This investment bond is perfect for making a long-term investment when you still want access to your money. You can arrange to make regular or one-off withdrawals as required.

You can grow your investment effortlessly, whilst zero hidden transparency provides for excellent transparency.

Leading Investment Bonds for You: The Verdict

Investment bonds are a great way to invest your cash in a low-risk investment. The money you initially invest is safe and cannot be decreased, which can happen when investing in stocks and shares.

After the bond has maturity and the investment period has ended, you are guaranteed to receive your initial deposit back.

However, during the maturity period, you will also be paid coupon payments in interest, which are separate from your initial deposit amount. The amount you receive from coupon payments can fluctuate, however.

Choose a corporate bond for a competitive yield and desire to grow. Or, choose a government gilt for stability and trust. Whichever option you decide to go for, be aware of the benefits and limitations an investment bond can bring.

Related Guides:

• A Comparative Guide Of Bonds Vs ISA
• Comprehensive Guide to Treasury Bonds
• Premium Bonds Vs ISA — What Is The Best Option In 2024?