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.