High Income Bonds

High income bonds - higher risk? As their name implies, high income bonds are designed for people wanting a higher stream of income than they could ordinarily get from conventional banks or building society accounts. The downside, of course, is that such bonds can tear into your capital more quickly, possibly depleting it rapidly. And like other stock market based investments, there is no guarantee on the return on capital - especially with a higher rate of regular income.

Some higher-income bonds - sometimes tagged as precipice bonds - will pay out a fixed income to an investor, regardless of the performance of the underlying investment. Other funds are capital-protected, so that if the fund suffers, the income is also cut back.

 

 

Do be aware that the more income that's paid out to the bondholder, the riskier the investment is likely to be. For anyone considering a high-income bond product, do check just how much of your investment is protected - if any. Also, keep any eye on charges. The UK Financial Services Authority (FSA) warns that some funds may deduct their charges for running the investment after they have paid out any income, which can put more pressure on the original investment. Some of these high-income funds have been sharply criticised by consumer watchdog organisations for failing to warn consumers sufficiently of their overall risk. Click here for details of how the income is taxed.

High-income products are higher risk investments, and so should only be used as part of an overall financial strategy. In a period of rising interest rates, they should be viewed with particular caution.

For low risk investments, see our guides to National Savings products at: www.Investments.co.uk/Financial_Investments/ National_Savings_Certifcates

 

UK Investments - Financial, Property & Other Investments - 1998-2008

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