“The Government's backing means the new one- and three-year Guaranteed Growth bonds look low risk, especially if inflation remains subdued, so their popularity is easy to understand,” Russ Mould, AJ Bell Investment Director. “Cash in the bank, up to the £85,000 compensation scheme limit, and UK Government bonds are the lowest-risk portfolio options, before inflation is taken into account. Any other investments should offer investors a higher yield, and the possibility of capital gains, to compensate them for the additional dangers involved, such as the non-payment of dividends or coupons or even a firm's bankruptcy.”
Record low interest rates are forcing investors to take on more risk in their search for higher yields from their portfolios of quoted bond or equity picks. Anyone looking to buy individual shares or bonds must do their research to ensure the dividends or coupons are safe but if careful study of cash flows and balance sheets is too much of a chore, there is a wide choice of bond and equity income funds available to investors.
Notes for Editors
- National Savings & Investment today (15 January) made £10 billion of its new Guaranteed Growth, or 'pensioner,' bonds open to applications from those aged over 65. Savers can invest between £500 and £10,000.
- The one-year bonds offer a fixed rate 2.8% before tax and the three-year bonds 4%. There will be a penalty if savers look to cash them in early.
- The Bank of England base interest rate has remained stuck at an all-time low of 0.5% since March 2009. The yield on the 10-year UK Government bond, or Gilt, stands at 1.51%. compared to its 20-2012 all-time low of 1.41%.
- The dividend yield on the FTSE All-Share index is around 3.4%.