0808 189 0463


        0808 189 0463

        Updated: April 23, 2024

        Types of Bonds

        Are you considering investing in bonds? Find out what different types are available and what kind of returns they offer in our guide

        Ask A Quick Question

        We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in investment bonds. Ask us a question and we'll get the best expert to help.

        FCA Logo
        1 of 2
        2 of 2 Send!

        No impact on your credit score

        Bonds offer a stable and secure way to invest over the long-term and receive a guaranteed rate of return. Many high street banks and building societies offer the option of investing in bonds, but with many different types of bonds to choose from, learning about all your investment options can help ensure you create an investment portfolio that’s balanced and the right match for your financial goals.

        We’ll cover….

        Types of investment bonds

        There are many different types of bonds and each vary in their selection criteria and approaches to risk. You can choose from low to high risk investments, fixed or variable interest rates, and bonds that are issued by governments or corporations. Read on to learn more about the different types of bonds and see how they could fit in with your investment and savings goals. Or, if you’d like to speak to a financial advisor who can offer guidance on investing in bonds, make an enquiry with us.

        Speak to a expert today

        Social impact bonds

        social impact bond (SIB) is a commissioning tool that enables the public sector, or UK government, to pay for improvements to social services or projects. Part of the savings made are passed on to investors. These social investors pay for the project and then receive payments according to how the project performs.

        Social bonds theory/examples

        A SIB project establishes a set of outcomes that the project should achieve. For example, helping a certain number of underprivileged youths get a qualification or vocational training. The project is delivered by a charity or social enterprise and an investor helps finance the project. If the project is successful, the commissioner will pay back the money over a period of time. The investor has an opportunity to make both a social and financial return on their investment.

        What is a guaranteed bond?

        A guaranteed bond is a bond that comes with a guarantee that a third party will pay interest payments if the issuer defaults due to bankruptcy or insolvency.

        Guaranteed equity bonds

        A guaranteed equity bond (GEB) is a guarantee-backed bond for stock market investments. It enables you to invest in the stock market through a bond and receive guaranteed returns even in cases where the stock market falls. It offers a secure way to invest in equity: you could make money if the stock goes up and you have a guarantee that you won’t lose your initial investment should the market fall.

        With-profits bonds

        A with-profits bond is a life insurance-based investment that’s usually offered by insurers. It offers a low-medium risk investment that can be used to balance out your profile, and it’s usually taken out for investment growth purposes and not solely as life cover.

        It usually requires regular lump sum payments into the bond and most plans enable you to take out regular monthly or quarterly income from the plan.

        Insurance bonds

        An insurance bond is a common form of investment in the UK. It makes it possible for investors to invest in a single premium life insurance policy.

        Index-linked bonds

        This is a type of bond in which interest payments are linked to a specific price index – often the Consumer Price Index (CPI). This protects investors from market fluctuations in the underlying index.

        Company bonds

        A company bond is a bond that’s issued by a corporation to raise funds for business needs such as business expansion, an M&A, or ongoing expenses. A company bond is often a longer-term investment, with a minimal one year term.

        Business savings bonds

        Business savings bonds are ideal investment tools for businesses looking to commit to stowing away their money for the duration of the bond, and receive a guaranteed interest rate.

        Many banks require a significant minimum deposit, of £5,000 or more, in order to invest in a business savings bond. A financial advisor can help you find the best rates for your business savings bonds.

        Ethical bonds

        Investing ethically can be an easy way to make sure your money is being used to benefit the greater good as well as generate a return. Ethical bonds allow you to invest according to your principles. Banks, investment funds, or companies create these bonds based on different criteria and areas of ethical interest. For example, some may focus on environmental or social enterprises, others may simply avoid investing in certain industries such as the arms or oil trade. To invest ethically, you’ll need to research the criteria of various bond providers to find out if these match your own ethical investment standards.

        Peabody Trust, the Co-operative Bank, and KfW Bankengruppe are all examples of ethical bond providers, but a financial advisor will have whole of market knowledge and can help to quickly match you with the right ethical bonds.

        Tracker bonds

        A tracker bond is a fixed-term investment in which some of your bond funds are invested in the stock market in a stock-market index and some are placed in a deposit account. The fixed term is usually set for a three to six year period. The interest rate for this bond is variable as it ‘tracks’ or follows the the Bank of England Rate for the fixed term. The exact terms and conditions vary according to the provider, but often you’ll need to be able to make a minimum investment of around £5,000.

        Tracker bonds can be a good option for savers who want to benefit from a guaranteed interest rate that still offers some flexibility for growth should the base rate rise – but bear in mind that it could also fall if the rate drops. To find the best tracker bond rates and terms, speak to a financial advisor with whole-of-market knowledge.

        Floating rate bonds

        A floating-rate note (FRN) is a variable interest rate bond which is tied to a short term benchmark rate such as the Federal Reserve funds, the US Treasury note rate, or the London Interbank Offered Rate (LIBOR). These bonds are also known as floaters and are issued by governments, companies, or financial institutions. Term length is often from two to five years. Like a tracker bond, it’s an investment that allows you to benefit from rising interest rates. However, a floating-rate note often pays a lower return than other fixed-rate bonds because it’s benchmarked to a short-term rate.

        Offshore bonds

        In an offshore investment bond, an investment wrapper is set up by an insurer in an offshore jurisdiction with a tax efficient regime such as the Cayman Islands or the Isle of Man. It’s an investment wrapper that you can use to help control the amount of tax you pay on your returns.

        Taxation of offshore bonds

        Gains from offshore bonds are taxed under different legislation than UK based bonds. Any returns on investment from offshore bonds are handled and taxed as savings income; gains are assessed according to the bondholder’s income tax rather than capital gains tax.

        Onshore versus offshore bonds

        There are many considerations to be aware of before deciding whether to invest in onshore or offshore bonds, some of these include your overall investment risk profile, or your need for simplicity of investment or easy access.

        Onshore versus offshore investing is a complex area of finance and investment, so it’s best to speak to an expert advisor who can help you design a bond investment portfolio that’s aligned with your needs and goals.

        What’s the difference between bonds and shares?

        If you buy stock, you’re buying an ownership interest in a company and will receive dividends paid out quarterly if the corporation is earning a dividend. When you buy a bond, you’re lending money to the company which it holds as a form of long-term debt and you receive principal repayments at set dates.

        There are different risk profiles and investment benefits to bonds and shares. Bonds often offer lower return potential but are safe and secure long-term investment vehicles; stocks offer higher potential returns and higher risks.

        Speak to an expert advisor today!

        Bonds are often a key component of many investment portfolios, but with many different types on the market, it can be difficult to know where to best invest your money. And since your investment will be tied in for a set term with penalties attached to early withdrawals, it’s wise to seek expert financial advice before locking up your cash.

        We work with vetted financial advisors with expert knowledge of bond investments who can help ensure you’re maximising your returns and avoiding any unnecessary or hidden fees.

        If you’d like help with selecting and investing in a bond, make an enquiry with us or give us a call on 0808 189 0463. We’ll find and put you in touch with the right advisor – we don’t charge a fee for making the connection and there’s no obligation.

        Ask A Quick Question

        We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in investment bonds. Ask us a question and we'll get the best expert to help.

        FCA Logo
        1 of 2
        2 of 2 Send!
        Richard Angliss

        Richard Angliss

        Finance Expert

        About the author

        Richard Angliss has made a career in financial services which stretches over 40 years.

        His early career was spent learning about the various financial products and applying them to prudent advice, working for one of the largest life assurance and investment firms. After that he joined the financial services arm of a very well-known firm providing independent advice to their 8 million customers.

        For the last 20 years he has been involved in building software solutions that help Advisers and clients work together to achieve good financial outcomes and helping to set up three independent advisory firms. He also has written many articles for financial services publications and provided commentary for newspaper journalists.

        At an early stage in his career he realised the great satisfaction that comes with being able to help people achieve their goals and protect their families. “Regulation of financial services has hugely impacted on ensuring people get appropriate advice. The issue these days is access to that advice and just as importantly regular reviews to make sure that everything stays on track”.

        With the growing development of online resources such as Online Money Advisor he sees a great future for people to access advice to make their pension and investment work harder for them.  Plus, of course, to ensure they have insurance products in place that will be required when unforeseen events happen.

        He knows getting that balance right is crucial to prudent financial planning and the wellbeing of individuals and their families.

        FCA Disclaimer

        *Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us as well as any of our own are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

        Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.