On the face of it, investing your money into either a savings account or a bonds program looks like the same thing. In both cases, you pay money in, and in both cases, you earn profit payments on that money. The more cash you put in, and the longer you keep it there, the more your investment grows.
However, there are crucial differences between buying bonds and investing in savings accounts. The primary difference being what you can do with your investment while you’re watching it grow.
Savings accounts are relatively simple – it’s likely that you’ll have been given a basic one as an add-on upon opening your current account. Syphon money into it, and you’ll be given profit payments on the total amount you have saved – usually every quarter.
However, you’re usually free to take money out of your savings account at any time. That fact means that your bank can’t always guarantee that the funds will be there to invest, so it won’t be able to give you much in the way of profit payments. These days, on average, you’re looking at profit rates of between 0.39% to 1.47% per year.
Generally, with bonds, the perception is that you must commit to a longer investment period before seeing any profits. With National Bonds, profits earned are distributed in the form of additional bonds which can be redeemed at different weightages dependent on the period. Ranging from 40% before completing 90 days to 80% redeemed on completion of 180 days.
After you’ve kept your money in the progam for 360 days, you’ll not only be able to reclaim 100% of your investment, but you’ll also be eligible for a profit payment. And that payment will typically be higher than what you’d get out of a savings account. For example, in 2016, National Bonds distributed profit rates of 1.75% per year for its one-year investors, and three-year investors saw profit rates of 3% per year.
If you’re looking to save money, but to be able to dip into your savings pot from time to time, a savings account would probably be the better option. But if you’re looking to commit to a long-term savings plan, without needing to withdraw from it, bonds offer better profit rates, meaning your investments will grow more quickly.
