Which 'Guaranteed Growth Bond' ?

Question

I have some cash, would like find a product with high return but no risk. Is 'Guaranteed Growth Bond' a product I should look at? What does a Guaranteed Bond mean?

Answer 1

It's usually not a good idea to invest in something you don't understand ...

There are many so-called 'Guaranteed' Bonds however it's just a name like 'Savings Account', except in this case your money is locked away for a fixed term (typically 1,3,5 or 10 years)

The small print usually hides the rip-off ... typically charges will be taken "up front" (eg. "5% start commission", "annual renewal commission") and the underlying investment may go down in price if the stock market does badly .. so you might not get back all the money you invested ..

In most cases the Bond interest/growth will be taxed at standard rate (and the Tax can not be reclaimed) but (if you are a higher rate taxpayer) you can 'defer' paying extra Tax until the Bond expires (so this makes it attractive to high earners nearing Retirement when they will typically revert to paying standard rate Tax).

Some allow you to withdraw up to 5% of the original investment per year during the investment period (others allow no withdrawals until the term is up). Those allowing withdrawal usually promote this as "Tax free" .. however since you are withdrawing the original investment (and not the Interest) it's like saying you can withdraw money from your Current Account 'Tax Free' ...

Answer 2

A Guaranteed Growth Bond is a investemt that is guaranteed not to fall below it's initial value ( what you put in), as a general rule however that more guarantees that are placed on an investment the less it will grow because it will be invested largely in cash and fixed -interest securities which are safe but don't have great potential for really fantastic growth.