Bonds are a popular investment for many people in Britain. Unlike stock investments where you are investing in the success of a company bonds work in a different way. Many different companies offer bonds for investment that are available through a range of bond options.

If you are interested in finding out more about bonds the following guide will help you.

Baby Bonds

Baby Bonds are the product of a fairly new government initiative called the Child Trust Fund. The Child Trust Fund was introduced so that more children can have access to savings when they are eighteen.

Baby bonds allow the investor the chance to save money and accumulate interest without any tax charges being made. To start a baby bond fund you first of all need to be receiving child benefit, a tax free payment available to parents and guardians raising young children.

After applying for child benefit you will receive a starter pack in the post which contains information about child benefit and a voucher for £250 for each child. This £250 voucher is used to start a baby bond investment and is non transferable.

Aside form the initial opening £250 up to £1,200 can be invested each year in the bond until the child is eighteen. As the child grows older the government intends to issue further vouchers that exceed the initial contribution of £250.

Premium Bonds

Premium bonds are a popular bond that many people in Britain have invested in. Unlike other bonds which replay interest premium bonds offer something significantly different.

With premium bonds investors make an initial investment that is retained for the duration of the investment. Each month prize draws take place and tax free cash prizes are awarded to the winners. The minimum investment is £100 and there is no limit to the number of bonds you can purchase.

Premium bonds are suited to both small and large investors. As you can choose the amount of bonds you purchase you can increase your chances of winning. If you are looking for a large investment with a guaranteed return you may benefit more from a savings account. However if you do win a substantial prize the investment will pay off as all prizes are tax free.

Guaranteed Income Bonds

As their name suggests, guaranteed income bonds are bonds that guarantee a fixed return of income or growth. The investor loans the bond provider a sum of money that is used over a predetermined period of time. When the bond reaches maturity the investor receives their initial investment plus the initial income generated.

Guaranteed income bonds are a good choice for people who are either new to investments or are looking for a low risk investment. As the funds are not being invested onto the stock market the success of the bond isn’t reliant on the performance of the company.

Depending on who you choose to invest with there will be different conditions to the bonds offered. Bonds are issued with a maturity date within one to five years away from the initial investment. It is sometimes possible to cancel guaranteed bonds prematurely however a fine will usually be charged. To get the most of your investment you need to see it through for the duration especially if you are hoping to achieve growth as opposed to income from it.