Protecting Your Savings Income Through Bonds

Corporate bonds prices and interest rates are closely connected because the former is bound to go up if the latter undergoes any substantial cuts. Hence investing in corporate bonds when interest rates are slashed substantially is a smart move for those who are looking for strong returns on investment.

At a time when interest rates are touching them bottom corporate bonds are paying a handsome rate of 7% or above before tax. The rate of interest is determined by the profitability of a company. The more the company is profitable the less will be the interest rate. However buying a corporate bond fund that invests in a range of different funds can bring you good returns with safety.

Thus corporate bond funds are presenting some of the best chances for investors. Gains from some parts of the fixed-interest market are similar to the returns from premium shares with lesser risk. These offers include major players such as Invesco Perpetual Corporate Bond paying 7.02% and Fidelity Money builder Income paying 5.85%. There are others such as M&G Strategic Bond paying 5.64% or New Star High Yield paying 9.3% Invesco Perpetual Corporate Bond and Henderson Strategic Bond paying 7.9%. If you plan to buy through a broker the minimum investment for all these funds is GBP100 per month or a one time payment of GBP1000.

GILTS issued by the government are currently another top option before interest rates fall further. A top option is Treasury 4.75% 2020 available for just over GBP100. It has a gross redemption yield of 4.65% being the maximum annual return until it matures in 2020. This income is taxable. However the income received through gilts held in an ISA is tax-free. The UK Debt Management Offices website sells these deals directly. However it is easier to buy through a stockbroker or bank.

The Gilts can be bought with prices quoted in terms of GBP100 a bunch. Barclays Stockbrokers charge a commission of GBP17.50 commission for a gilt order of up to GBP500 over the phone. It is also available through the Debt Management Office with a minimum limit of GBP1000. A better option for first time investors is to choose gilt funds. These funds invest in a range of gilts with different maturity dates and income levels. A top option is M& G Gilt and Fixed Interest which is paying just under 4%. The minimum limit in the beginning is GBP500.

Investing in equity income funds are another smart option. These funds are invested in top shares of UK companies ensuring healthy dividends for assured income and capital growth. However there is a risk of losing money as the investment is subject to stock market ups and downs. The income may go down in the shorter term when the economy slows down but over the long term it will grow. The trick is to choose the right option from a large number of high-yielding funds.