5 Reasons Bonds are a Good Investment

You can invest in bonds with various banks. Bonds require that you invest for a specific period, without withdrawals, with an interest rate provided in much the same way as a savings account. As such, they can have a number of potential advantages. Here are a few of the advantages of bond investments.

One: Higher Interest Rates

To begin with, it’s worth noting that bonds usually have higher than average interest rates. In comparison to saving accounts most bonds will have higher AERs (annual equivalent rates). This is especially the case if you invest in longer term bonds which can have much higher rates of interest. As such, they are good longer term investments.

Two: Fixed Interest Rates

Secondly, bonds usually have fixed interest rates. Fixed interest rates are interest rates that will not change, unlike variable rates which can go up and down. As such, the AER that is stated for the bond will remain as such until the end of the bond period. As long as you do not make any premature withdrawals that will be the interest rate that will be returned when the bond is closed. This is an obvious advantage that other alternative investments cannot match, with the possible exception of fixed interest saving accounts.

Three: Short and Longer Period Bonds

Another advantage of bonds is that they can either be shorter or longer term investments. Banks usually have bonds for up to five periods, with short term one year bonds up to longer term five year bonds. As such, the bonds are also a fairly flexible investment even if they are not instant access.

Four: No Commissions or Fees

Some investments such as stock portfolios can require a commission for fee. This commission could be a small percentage of the investment such as a 5% monthly commission. However, this is not the case with bonds. Bonds do not require any commission or fee to invest in them.

Five: Minimum and Maximum Deposits

All bonds will require a minimum deposit of some description. While this can vary somewhat, some bonds can have low minimum deposits of just a few hundred dollars or pounds. As such, it is not necessarily the case that a big minimum deposit is required. In addition to this, most bonds have much larger maximum deposits and so they can be a good larger investment. However, as stated they can vary and you should check the exact figures before you open the bond.

So there you have five advantages of bond investments. Larger interest rates, fixed interest rates, flexible shorter and longer period bonds, no commissions required and a big minimum and maximum deposit range are all advantages of the bond investments. As such, bonds can be a good alternative to saving accounts.