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What are guaranteed income bonds?

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Quick Answer

A guaranteed income bond is an investment product issued by life insurance companies in the United Kingdom, Investopedia explains. The interest provides income over a certain time period, typically six months to 10 years.

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Full Answer

Guaranteed income bonds provide individuals with interest payments over a fixed period, so the investor is aware of his return on investment. The initial investment is guaranteed to be safe and is usually returned when the investment period ends, states Investopedia.

Guaranteed income bonds are taxed at the 20 percent basic tax rate. Higher-rate tax payers face an additional tax bill, notes This is Money. Income in excess of 5 percent of the initial investment must be added to the investor's other income for that tax year to determine if he is still a basic rate tax payer.

Guaranteed income bonds are flexible, and investors can choose whether they want the income paid annually, monthly, or roll the cash and pay it when the bond's term expires. There is a general risk with fixed-rate investments in that if the base rate rises the investor misses out on the benefits he would have received in a regular savings account, notes This is Money. Investors can purchase guaranteed income bonds through independent financial advisers.

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