Savings - Interest Paid Gross


National Savings offer one of the few safe investments which still pay interest 'gross'. Building societies, local authorities and banks all now pay interest as if you had already paid basic rate income tax on it. If you do not pay tax, it is advisable to have some money invested in National Savings where the interest is paid gross.

For example, a married man of sixty-six gets the age allowance of £9 ,069 . If his retirement pension is £69 .90 and his company pension is £18.66, his annual income is £8,068. That means that he can have £967 free of tax. So he could invest enough capital in National Savings which pay interest gross to give him £967 and put the rest in a building society or in a tax free National Savings product.

Income Bonds

An income bond gives you a monthly income from your investment. The bonds are sold in multiples of £1,000, but you must invest at least £8,000 and the interest rate at the time of writing is 10.9 %. The income is paid monthly and can be credited direct to a bank or building society account.

The interest rate is not fixed so your income will change as the rate goes up or down. You must give three months' notice to cash in a bond and you can cash them in only in multiples of £1,000. If you cash in within the first year, you get only half the interest rate.

Index linked bonds are similar except that the income is calculated at 8% in the first year and then in each subsequent year it is increased so that your monthly income keeps pace with inflation. The bonds are sold in multiples of £1,000, but there is a minimum holding of £9 ,000. The capital is not protected against inflation. After ten years the capital is repaid to you if you have not already withdrawn it.

You can obtain the forms and addressed envelope to apply for bonds from a post office where you will also find leaflets about them.


More information

Savings if you have any - Deposit Bonds


Deposit bonds are similar to income bonds but the interest is not paid monthly. Instead it accumulates until the bond is cashed. Each year the interest earned to date is credited and begins to earn interest itself.
However, the interest is liable for tax each year, even though you do not withdraw it. The bonds are in units of 9 0 but there is minimum holding of 100 They can be cashed in multiples of 9 0 on three months' notice.
You can obtain the forms and addressed envelope to apply for bonds from a post office where you will also find leaflets about them.
Investment Account
The National Savings investment account is similar to a building society account. You can invest any amount from 9 to 100000 . . . ... see: Savings if you have any - Deposit Bonds