Pros and Cons of Bond Investments

Bond investments are an investment made for a fixed period. After the investment period they then provide an interest based return. Their interest rates can vary somewhat, but it is usually the case that the longer the investment period the higher the interest rate they provide. Overall, bonds can be a solid investment, but may not be an ideal investment for all.

Bond investments have interest rates in much the same way as saving accounts. However, bond investments usually have a higher than average interest rates. In this respect they are a better alternative to saving accounts.

In addition to this, bond investments usually have a fixed interest rate as well. There are two types of interest rates, variable and fixed, and variable interest rates can to up as well as down. However, fixed interest rates will remain the same, and certainly will not go down. Given this you can be sure of exactly what the bond will return for the investment. As such, this is another advantage of bond investments.

Bond investments can also be either shorter or longer term investments. One year bonds are ideal short term investment options, while there are also longer term bonds with higher rates of interest. As such, they are also flexible investments.

In addition to this, bond investments do not require any commission or fees. Some investments may require a monthly percentage based commission or fee in relation to the investment. No annual or monthly commission is required for bond investments.

These are a few of the more notable advantages of bond investments. However, it is also worth noting that bond investments are not easy access. Unlike some alternative saving accounts you cannot make withdrawals from most bond investments. The bond investment must also remain open for the specified period of the bond if you are to receive the quoted interest for the bond.

In addition to this, it is also worth noting that bonds are not tax-free investment options. In the UK there are ISA saving accounts which are tax-free investments. However, this is not the case with bonds, and so a lower net rate of interest will be also be included for the bond along with the gross rate of interest.

As bonds can have higher than average fixed interest rates they are worth noting. However, it may be possible to find a number of comparable saving accounts that could be a better alternative, especially if they are ISA accounts. As such, in much the same way you can invest in some fixed rate ISA accounts with a comparable rate of interest for a short period.