Investment bonds are types of investments commercialized by life insurance agencies, which invest your money into a diversity of funds and shares. Originally, you have to provide a large lump sump, according to the requirements of that particular agency, which will be invested into more collective funds. Your investment is managed by professional investors, who will attempt to produce large capital growth, which will contribute to your long term income. Each bond tries to provide incomes for your different types of investments.

• investment bonds are recommended for those who are obliged to pay higher taxes than the average, and want an extra earning. This is possible because you can withdraw over five per cent from your bonds annually, for more than twenty years without any direct tax liability. If you decide to not to take out that five per cent you can withdraw ten per cent the next year. Compared to unit trusts and savings accounts which are subjected to income taxes investing in bonds is a far better choice. However, if you decide to take out more than five per cent of the initial amount in a year, or you want to close your bonds within the first five years you will have to face penalization.
  
  
• in case of sheltering a capital from a tax on any inherited goods, you can manage a so called loan trust. However, when it comes about taxation, investment incomes in bonds are charged only half of a trust’s taxes.
  
  
• bonds are also recommended if you are before retirement and want an extra income to supplement your pension, but the age allowance gap does not always permit this. With income earned from investment bonds your annual earnings will rise above a certain level, thus you can benefit from the extra personal tax allowance.
  
  
• it is also a good option for those who want to invest on the long term, but have no time to manage particular investments. Therefore, a group of professional managers and financial experts will deal with your invested money.
  
  
• if you need a long term care, and you have a case on that with your local authority, they will usually not take investment bonds into account as assets. Thus, your request will be considered as eligible.

When you decide to invest in bonds, be very careful about the bond sellers. Agents who sell investment bond can receive a very high initial commission. Therefore, there are a lot of unscrupulous sellers, who try to convince you to buy their package, while there are other, similarly good, alternatives. Before putting your trust in a company, shop around for the best offers. An initial commission might not exceed three or four per cents of the investment’s overall value, while annual commissions must not exceed the amounts you can otherwise pay on unit trusts. Unit trusts or open ended investment agencies might offer cheaper services, but on the long term bond investments turn out to be more profitable. However, unit trusts are more flexible, as you can take out your money whenever you want, without extra charges.

The greatest advantage of investment bonds is their tax deferring feature. If you pay taxes in the so called high tax rate, but you want to become a general rate taxpayer (in retirement), when your bond is turned into cash, you can avoid paying any additional tax. At the same time, you should know that if you invest in a bond which performs badly, you can get worse incomes than in a better performing fund with more significant taxes.

And here is just one more advice: never ever cash your bonds in! Try to hold the bond until the end of the investment period. If you still need professional advice, ask for the support of experts in finance, luckily they don not charge commissions, just fees.

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