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> Capital Bonds - UK Guide
 In a nutshell
Capital bonds are a type of investment that enable investors to get a guaranteed return on their initial investment through fixed rates of interest, which will rise each year. This provides a little stability and reassurance for those that want to know exactly how much they will get at the end of the investment term.
Best Bond for
Capital bonds can suit all sorts of people. The minimum age for investment is seven years of age, although these bonds can be purchased by others for those under the age of seven years. They are a good choice for those that want to enjoy a low risk investment and enjoy guarantees on returns.
How does the Bond work?
These capital bonds come in series, and each series has its own rate of return, which is guaranteed. The initial investment can be small, with the minimum standing at just £100. The maximum that can be held in total is £1 million. The bond steadily grows in value as the interest is reinvested each year, on the date that the investment was originally made. The bond matures after five years, and the full return can be enjoyed at this time.
Expected Returns
The returns on a capital bonds investment are guaranteed, but will obviously be based upon the amount invested and the interest rates being offered at that time. It is important to discuss returns fully at the time of investment to ensure that you are not expecting more than you are likely to get. This will also enable you to decide whether you are making the right choice based on the expected return stated.
Length of Investment & Access
Capital bonds should be a five year investment, as this is the time at which you will receive your full return on your investment. However, it is possible to cash in these capital bonds without any notice and at any point during the investment. This will obviously affect the return on your investment, and within the first twelve months you may get no return at all.
You can also cash in part of your capital bonds, but this must be a minimum of £100, and you must still have at least £100 once you have cashed in part of the bond.
Advantages
There are a number of advantages to this sort of investment, and these include:
An investment option for youngster aged seven or over
An option for those looking for a stable investment for under sevens
Offers a guaranteed return for those that do not wish to take risks with investments Interest rates are fixed each year, and rise yearly
Access to cash in at any time (subject to penalties)
What to look out for
There are restrictions placed on this type of investment. For instance, there are minimum and maximum sums involved when purchasing or holding capital bonds. There are also restrictions relating to the cash-in of bonds, and you must pay the penalties in returns/interest for early cash in. It is also worth noting that this is a taxable investment, and therefore interest earned through this investment is taxable.
Alternatives
If you are looking to invest in other stable investments, there are a number of different options available. You can opt for investments such as:
High interest bank or building society savings account
ISA
Premium bonds through National Savings
Always check the features, interest rates, restrictions, and benefits of any account or investment product that you are considering, as your choice could make a big difference to the return you get on the investment.
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