Understanding cash Isa's and bonds

Many people opt for bonds or Isa's

Investors counting the cost of falling stock markets, endowment disasters and pension worries, are increasingly looking for safer places for their money.

Many people opt for bonds or Isa's. We explain what they are:

Cash Isa's

Bank and building societies offer ISA's with tax-free interest making this a better place for your money than a straightforward deposit account.

Up to £3000 can be invested in a mini-cash ISA.

If you are happy for your money to be tied up for a number of years you can get a fixed rate of interest - a low risk option but if the base rate climbs you may regret your decision.

Gibs

Insurers offer Guaranteed Income Bonds which pay a fixed rate of interest for a set period.

Interest is paid after basic rate tax has been deducted and higher rate tax payers will have to pay the additional tax.

Non-tax payers will therefore be better off with a bank or building society account which can offer gross interest.

Gilts

Gilts are issued by the government as a means of raising money.

These bonds pay a fixed rate of interest, until a specified date, at which point your capital is repaid.

Bought and sold like shares, the price of a gilt will depend on the market.

With the interest fixed, when rates rise the gilts price will fall and its yield increases.

Equity Bonds

Some of these bonds will promise you your capital back after a period but limit the interest.

With others you may receive a guaranteed income but they may pay it our of your capital.

With-profits bonds

A with-profit find may invest in a combination of gilts, property and shares.

Some profits are withheld to insure against leaner times when the markets are not doing so well.

These bonds can carry considerable risk and there could be penalties when you cash the bond in.

Corporate bonds

These bonds are issued by individual companies and pay a fixed rate of interest for a set amount of time.

You normally receive a fixed amount of your capital back when the bond matures.

With corporate bonds however, there is always the risk that the company concerned will go bust.