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Are Government Bonds Worth Using?

There are all sorts of places that we can put our savings. Most people choose an instant access savings account so that they can get to their money quickly in case they need it to pay a bill, make a loan payment or buy something. However, there are others that look for something with a better interest rate and there are several options that they can choose from. One of these options is a government bond. These have advantages and disadvantages and it is worth considering them before deciding whether you think that it is something that you want to put your money into.

Advantages of a government bond

A government bond is a very secure place to put your money. You will have the guarantee that you will get your money back in all circumstances. Although many banks have this guarantee as well, which is also backed by the government, you may feel more secure knowing that it is actually a government issued bond.  You will also often get a fairly good interest rate compared to an instant access account which could mean that it will be a good chance to make a bit more money from your savings. The fact that you are tying your money up means that you will get a better interest than you would in an instant access account. This means that you can make more for your money which is always a great thing as you get money without having to work for it.

Disadvantages of a government bond

Government bonds are not always available; they often are released on a certain date and there will be a limited time to apply before the option closes and you will not be able to buy any until they are offered again. This means that you will not always be able to get them. The interest rate is fixed which means that if the base rate goes up you will not be able to take advantage of any increase that is added onto savings accounts. However, if the fixed rate is significantly higher than other accounts then the chances of them beating it in regards to interest rates is low. Also, if that rate if fixed over a number of years and it starts off higher than other accounts, then you may still gain even if the rate goes up higher than the fixed rate bond rate. You will be locked into to a period of time probably between one and five years. If you withdraw your money before the term is up you will lose some of the interest and it could make the return you get so low that it may have been better having it in an instant access account. Government bonds are often lower in interest than other types of bonds released by banks and building societies so you might want to compare the interest rates first.

You may like to take out a government bond so that you can help the government. They give the opportunity to buy bonds as a way of raising capital and use the money that you have put in the bond to spend or increase the money supply. You might like the fact that you are helping with this.

However, tying your money up for so long may not be an attractive prospect for you. You may rather be able to access your money whenever you need it rather than only after a number of years have passed. If you do not trust yourself to not make a withdrawal but you want to make sure the money stays saved, then it could be an advantage to tie it up so that it is more difficult to get at it and spend it.

You may feel that you would rather not help out the government if you do not agree with the wa that they are spending money. You may feel that get enough form you in tax and national insurance and that you are not prepared to do any more.

So, there are lots of reasons for liking and disliking the idea of saving in a government bond. If money is your top priority then comparing the rate with other bonds is the most important thing to do as there is no point in taking one if it is not competitive. Do compare the rate with any rate you are paying on loans that you have as it might be better to repay those first rather than saving your money. You do need to think about whether you are happy with tying your money up. You may have to tie it up for five years and that is a long time if you want the money. However, you should be able to get the money if you really need it but you will have to forgo your interest if you do.

Which Child Saver Account is the Best?

Looking for a good savings account for your child can be quite tricky. Savings rates tend to be higher for children’s accounts and so this can mean that it is certainly worthwhile finding them an account especially designed for children. However, there are a range of accounts form trust funds to instant access accounts and it can be difficult knowing what to choose.

It is worth thinking about what type of account to get your child and whether you might want more than one. Some of the options are listed below –

  • Instant access savings account – these accounts are popular as children can pay into them as often as they like and also withdraw money when they like. It allows them to get used to how banks work and they can use it to pay in pocket money and save up for things. Many banks and building societies offer these accounts. Often you only need £1 to open the account and can pay in any amounts of money, meaning that it easy to use.
  • Child trust fund – a child trust fund will lock up money until the child is 18. This means that any money that they put in will not be able to be withdrawn. It is usually possible to invest in the stock market or in cash with these funds, with the cash ones not really giving a good return compared to other options, but the stocks and shares could give a good return if the market does well. They could be more of a gamble but if the money is held in the account for a long tie then there is a good chance that they will increase in value. Tying the money up until the child is 18 means that they cannot withdraw it and spend it on unimportant things that they might regret at a later age. When they do turn 18 then they could use the money to help them through university so they can have a lower loan or for a deposit on a rental property or towards a mortgage. They might alternatively want to spend it on driving lessons and a car so they can get to work easily.
  • Premium bonds– premium bonds will also lock money up but until the child is 16. The money in premium bonds does not earn interest but is used to purchase bonds that are entered in a draw each month to win various monetary prizes. These tend to favour those with more money invested as that will increase their odds of winning a prize. It can mean that there is no return at all on the money but it could mean that they get a big return. It will depend on luck.

Once you have decided on what type of account or accounts you feel would suit your child you then have to pick between the different providers. There are many that offer children’s accounts because they hope that they can get loyalty form that child who may then keep their money with them as they get older. Rates are therefore pretty competitive. They do vary though and they may change as well. So, if they have an instant access account make sure that you keep an eye on changes in the market as there may be better rates available if they swap to a different bank or building society.

There are websites which compare the rates of savings accounts including those designed for children and so these can be very useful, both in choosing the accounts to start with and then tracking them to see which are the most competitive with regards to interest rates. They can be useful places to visit and to keep track of whether your children are getting the best rates they can.

Of course, there may be other factors that might determine who you go with. You may like it to be a place that has a local branch so your child can go in and pay in their money and handle the coins and chat to the teller. This is all part of showing them how finance works. You may not worry so much about this if you feel that the future will be online banking anyway and so it could be unlikely that they will want to go into a bank when they are older anyway. You may also be interested in the reputation of the bank or building society, whether you feel you can trust them and if you have heard of them. Alternatively, you may want them to use the bank that you currently use. It is worth having a think about your reasons for wanting them to use certain banks or building societies and whether those are good reasons. If you do not know the ones with the best interest rates then take some time to find out more about them before you dismiss them.

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