Long-term capital gains treatment serves as encouragement for investors to buy what?
March 31, 2009 by How Savings Bonds Work
Filed under More Bonds Answers
Can you answer Matt Space’s question about Bonds?:
Long-term capital gains treatment serves as encouragement for investors to buy
Long-term capital gains treatment serves as encouragement for investors to buy
a. high yield stocks
b. municipal bonds
c. U.S. government bonds
d. growth stocks
Unclaimed Premium Bonds
National Savings - the Right Option for you ?
March 30, 2009 by How Savings Bonds Work
Filed under About Bonds
When we deal with new clients, we encounter Premium Bonds frequently, but it’s not very often that we see the many other products offered by National Savings and Investments (NS&I).
Some NS&I returns are currently looking quite attractive, and so it is worth perhaps looking at two such investments, Premium Bonds and Savings Certificates.
The purpose for NS&I offering savings accounts and bonds is to raise money for the government. The various offerings range from tax free to taxable, and of course are safe havens for your cash as they are backed by the UK Government.
Around a quarter of all the money invested in NS&I is held in Premium Bonds. Of course, strictly speaking, they are not investments as they are based not on earning interest but effectively a lottery in the form of a monthly prize draw.
Of course this means that you may be lucky, or not. The chance of you winning equates to a rate of 3.8% tax free.
But you are only risking the interest not the capital.
For a higher rate taxpayer assuming income tax at 40%, this is an equivalent rate of 6.33% gross.
Now let’s look at Savings Certificates.
One of the problems for higher rate taxpayers is having a large chunk of their gains taxed at 40%. One of the major benefits of Savings Certificates is that they are tax free.
The fixed rate Certificate, for example the 2 year option, pays 3.95%. This comes out at 6.58% for a higher rate tax payer and 4.94% for a basic rate payer. There is also a 5 year option, which is currently paying 3.85%.
Turning to index linked certificates, the picture looks even more attractive. Due to increasing inflation, judged for these purposes to be 4.5%, the 3 year issue returns 1.35% above this. This gives a net return of 5.85% p.a. and a gross equivalent for a higher rate taxpayer of 9.75%! The rate is also the same for the 5 year product.
You can invest from £100 to £15,000 per issue, with no limit on reinvesting matured Certificates.
You can learn more about NS&I at nsandi.com
The Key Considerations:
Ensure that you take into account all the rates and products out there, particularly if you pay higher rate tax. NS&I could be ideal for you, especially if you are in a phase of your life where you don’t need to take any risk with your capital.
Now could be a good time to review all your cash and bond based investments.
Thanks to Ray Prince for contributing this article to our Bonds blog:
Some NS&I returns are currently looking quite attractive, and so it is worth perhaps looking at two such investments, Premium Bonds and Savings Certificates.
The purpose for NS&I offering savings accounts and bonds is to raise money for the government. The various offerings range from tax free to taxable, and of course are safe havens for your cash as they are backed by the UK Government.
Around a quarter of all the money invested in NS&I is held in Premium Bonds. Of course, strictly speaking, they are not investments as they are based not on earning interest but effectively a lottery in the form of a monthly prize draw.
Of course this means that you may be lucky, or not. The chance of you winning equates to a rate of 3.8% tax free.
But you are only risking the interest not the capital.
For a higher rate taxpayer assuming income tax at 40%, this is an equivalent rate of 6.33% gross.
Now let’s look at Savings Certificates.
One of the problems for higher rate taxpayers is having a large chunk of their gains taxed at 40%. One of the major benefits of Savings Certificates is that they are tax free.
The fixed rate Certificate, for example the 2 year option, pays 3.95%. This comes out at 6.58% for a higher rate tax payer and 4.94% for a basic rate payer. There is also a 5 year option, which is currently paying 3.85%.
Turning to index linked certificates, the picture looks even more attractive. Due to increasing inflation, judged for these purposes to be 4.5%, the 3 year issue returns 1.35% above this. This gives a net return of 5.85% p.a. and a gross equivalent for a higher rate taxpayer of 9.75%! The rate is also the same for the 5 year product.
You can invest from £100 to £15,000 per issue, with no limit on reinvesting matured Certificates.
You can learn more about NS&I at nsandi.com
The Key Considerations:
Ensure that you take into account all the rates and products out there, particularly if you pay higher rate tax. NS&I could be ideal for you, especially if you are in a phase of your life where you don’t need to take any risk with your capital.
Now could be a good time to review all your cash and bond based investments.
Thanks to Ray Prince for contributing this article to our Bonds blog:
Ray Prince is an Independent Financial Planner with Rutherford Wilkinson plc, and helps UK Resident Doctors and Dentists get the best deals on mortgages, protection and investments, as well as helping them achieve their financial objectives. Click here for Financial Advice for UK Doctors and Dentists and to get your free retirement guide, How To Avoid The 7 Most Common Retirement Planning Mistakes. Rutherford Wilkinson plc is authorised and regulated by the Financial Services Authority.
What Are The Different Types Of Bond Definition?
March 30, 2009 by How Savings Bonds Work
Filed under About Bonds
A bond is a debt security that is run by a government or agency. It usually lasts for long periods of time, or durations, which will take longer to mature. There are many important bond definitions that you should know.
The first bond definition you need to know is that of a bond fund. This is a type of mutual fund where you invest in bonds. You can invest in bonds of different values, including a baby bond that has a face value of less than a thousand dollars. Also, your bond will feature a Committee on Uniform Security Identification Procedure number for identification.
Some of the most important bond definitions to consider involve what types of bonds are out there. For example, bonds can have different periods of time for maturity, which is the date in which you will have to pay back the principal on the bond. For instance, a treasury bond is a standard type that features a maturity level between ten and thirty years.
A treasury bill, however, is a bond that has a maturity level of less than a year. It is usually given out in an auction, where you will receive the bill at an interval stated by the Federal Reserve Bank of the United States. You will also need to consider the bid, which is the top price offered for a bill, when looking for one. The lowest price is the asked price.
There are other bonds with different maturity levels to consider too. A treasury note will have a maturity level between one and ten years. Also, an intermediate-term bond will mature in five to ten years. If you need to redeem your bond before maturity, however, you can take out a callable bond.
Also, a tax exempt bond will not have any federal income tax involved. A zero coupon, meanwhile, will have no interest and is sold at face value, which is the par value, or original price, of the bond. However, there can be a discount, which is where the market price is less than par. The owner of this type of bond will receive a profit at bond maturity. Plus, a derivative zero bond is one that does not have coupon or principal payments, as the coupon will be sold separately. The coupon will be discussed later in this article.
A convertible bond is another bond definition to look at. This is a bond that allows you to convert your investment into stock. The price of this when divided by the conversion price is the conversion ratio.
In some cases a bond involving a different type of currency than what you are used to can be involved. This is where a Eurobond is taken out. A Eurobond is a bond that usually has no tax and is issued in a currency other than what you use.
Several bond definitions you will need to consider involves how much you will pay. The ask and bid have already been discussed, but there are other bond definitions to watch for. For instance, there is the coupon, which is the annual interest percentage on your bond that you will have to pay.
Also, there is the yield, which is the rate of return on your bond. This can be read through a yield curve, which is the pattern of yields on bonds that you may have. The modified duration can be considered, as it shows how sensitive a bond is to changes in its yield. This also relates to the volatility of the bond, which is the measure of the bond’s price movement over time. The convexity of the bond is also important to consider. This is the measure of the curve of the price of the bond and its yield in regards to a fixed income.
A current yield is one that is the coupon payment divided by the price of the bond on the market. However, the basis point is another type of bond definition that relates to this. It is one hundredth of a percentage point of a yield.
Debentures are essential bond definitions to know. A debenture is a debt secured by the lender and its assets. A subordinated debenture is one where a claim for interest and principal are made later on.
In the case that you are considered about your bonds, you should know about another bond definition, the hedge. The hedge is where you reduce your risk in a bond or security by taking in an offsetting position with another security.
Thanks to Geoff Spencer for contributing this article to our Bonds blog:
The first bond definition you need to know is that of a bond fund. This is a type of mutual fund where you invest in bonds. You can invest in bonds of different values, including a baby bond that has a face value of less than a thousand dollars. Also, your bond will feature a Committee on Uniform Security Identification Procedure number for identification.
Some of the most important bond definitions to consider involve what types of bonds are out there. For example, bonds can have different periods of time for maturity, which is the date in which you will have to pay back the principal on the bond. For instance, a treasury bond is a standard type that features a maturity level between ten and thirty years.
A treasury bill, however, is a bond that has a maturity level of less than a year. It is usually given out in an auction, where you will receive the bill at an interval stated by the Federal Reserve Bank of the United States. You will also need to consider the bid, which is the top price offered for a bill, when looking for one. The lowest price is the asked price.
There are other bonds with different maturity levels to consider too. A treasury note will have a maturity level between one and ten years. Also, an intermediate-term bond will mature in five to ten years. If you need to redeem your bond before maturity, however, you can take out a callable bond.
Also, a tax exempt bond will not have any federal income tax involved. A zero coupon, meanwhile, will have no interest and is sold at face value, which is the par value, or original price, of the bond. However, there can be a discount, which is where the market price is less than par. The owner of this type of bond will receive a profit at bond maturity. Plus, a derivative zero bond is one that does not have coupon or principal payments, as the coupon will be sold separately. The coupon will be discussed later in this article.
A convertible bond is another bond definition to look at. This is a bond that allows you to convert your investment into stock. The price of this when divided by the conversion price is the conversion ratio.
In some cases a bond involving a different type of currency than what you are used to can be involved. This is where a Eurobond is taken out. A Eurobond is a bond that usually has no tax and is issued in a currency other than what you use.
Several bond definitions you will need to consider involves how much you will pay. The ask and bid have already been discussed, but there are other bond definitions to watch for. For instance, there is the coupon, which is the annual interest percentage on your bond that you will have to pay.
Also, there is the yield, which is the rate of return on your bond. This can be read through a yield curve, which is the pattern of yields on bonds that you may have. The modified duration can be considered, as it shows how sensitive a bond is to changes in its yield. This also relates to the volatility of the bond, which is the measure of the bond’s price movement over time. The convexity of the bond is also important to consider. This is the measure of the curve of the price of the bond and its yield in regards to a fixed income.
A current yield is one that is the coupon payment divided by the price of the bond on the market. However, the basis point is another type of bond definition that relates to this. It is one hundredth of a percentage point of a yield.
Debentures are essential bond definitions to know. A debenture is a debt secured by the lender and its assets. A subordinated debenture is one where a claim for interest and principal are made later on.
In the case that you are considered about your bonds, you should know about another bond definition, the hedge. The hedge is where you reduce your risk in a bond or security by taking in an offsetting position with another security.
Thanks to Geoff Spencer for contributing this article to our Bonds blog:
Geoff Spencer is a staff writer at Investor’s Journal and is an occasional contributor to several other websites, including Online Business Gazette.
Savings Bonds?
March 30, 2009 by How Savings Bonds Work
Filed under More Bonds Answers
Can you answer kimberly24241999’s question about Bonds?:
What should I do with Savings Bonds after they have hit Maturity. Some tell me to leave them alone and some tell me to cash it in and get new Savings Bonds with them? It’s my 6 years old son- his great-grandma gives Savings Bonds for his Birthday every year
How Much Is My Savings Bond Worth
What should I do with Savings Bonds after they have hit Maturity. Some tell me to leave them alone and some tell me to cash it in and get new Savings Bonds with them? It’s my 6 years old son- his great-grandma gives Savings Bonds for his Birthday every year
How Much Is My Savings Bond Worth
What is a Certificate of Obligation?
March 30, 2009 by How Savings Bonds Work
Filed under More Bonds Answers
Can you answer curiousfuturepublicadmin’s question about Bonds?:
Specifically pertaining to municipal bonds, what is a certificate of obligation?
Us Treasury Savings Bonds
Specifically pertaining to municipal bonds, what is a certificate of obligation?
Us Treasury Savings Bonds
