You can receive this income weekly, monthly or, more commonly, annually. In addition you can withdraw up to 5% of your investment each year. Other than that, unless you are willing to face heavy charges for early withdrawal, you’re expected to leave your sum to mature, and cannot access the rest of the funds until then.

Typically the minimum amount you can place in such bonds is £5,000 with the maximum normally being £1,000,000.

Perhaps the biggest difference with between guaranteed income bonds and savings accounts is the fact that they are purchased from insurance firms rather than banks. However, potential investors should rest assured that these institutions offer the same high level of security you’d expect when placing your money into a regular account. Indeed, the only way your original pot of capital can be eaten into or lost is in the unlikely event of your chosen insurer going bust. Even then you can claim compensation worth up to 90% of your investment.

The other big difference, the one that attracts many high earning savers, is that, due to UK tax laws, savings can be made on the amount of your earnings that will be payable to the inland revenue. This is because all investment bonds are charged at the basic rate of tax (20%). As higher and top level tax payers are supposed to pay 40% and 50% on their incomes respectively, they are taxed again at 20% or 30% depending on which bracket they belong to.

However, unlike with income earned through on an interest account this amount is not ‘grossed up’ before the extra tax is applied. Only the actual income is subject to the extra tax. This leads to a small tax benefit, which, when dealing with large amounts, can save you a considerate amount.

Whilst the flexibility bonds offer can make them more attractive to savings accounts, they only offer their full benefits to top level tax payers. In addition, experts generally warn against investing at a fixed rate of interest over a long period of time as, if the base rate rises, your investment will effectively well you short.

How Will Junior ISAs Work?

The main difference between an ISA and any other form of savings account is that the interest accrued is exempt from tax and, whilst children’s savings are protected from tax to an extent, Junior ISAs will now allow you to make completely tax free savings for your child.

This is because Junior ISAs, unlike regular savings accounts, are not subject to ‘the £100 rule’, which states that any interest above a cap of £100 earned by a child’s savings is considered part of the parent’s earnings and taxed accordingly.

Do I Invest Cash or Shares?

Both Cash and Shares based options are available however, one of the biggest advantages of Junior ISAs is that, as children are entitled to one account of each type, you don’t have to choose between them.

This means that, if you are wanting the make the most of the opportunities for profit that the stock market offers, but are worried about tying your investment to the fortunes of the market, you can spread the risk by placing some of your funds in a cash ISA.

Whilst the lack or risk attached to the cash option is attractive (there is no way that your investment can loose value unless inflation rises quicker than the interest rate offered by your ISA provider) it is worth remembering that, traditionally, the value of shares has risen quicker than the rate of inflation. If you do go with a shares option you’ll find that, as the investment is so long term, some of the risk is taken out of the equation and that a poor performance one year can be redeemed over time.

Finally, funds can be switched between the two accounts, allowing you a greater degree of control over your investment.

Who Has Control Over the Account?

Whilst the parents are charged with managing the account and can, for example, move funds from a child’s Junior cash ISA to a shares based option, the extent of their control is limited.

Firstly, once funds have been paid into the account they are ‘locked in’ and cannot be accessed again by anybody other than the child whose name the account is in, and even they can only withdraw money once they reach 18.

Parents are also unable to control how or when their child will be able to access the money. On their 18th birthday the account will automatically become an ordinary ISA and control of it will be handed over to them. As a result they will have full and immediate access to all of the funds in the account.

Who Qualifies for a Junior ISA?

To a large extent Junior ISAs are being introduced as a replacement for Child Trust Funds, a type of government sponsored savings account for children which stopped running in January 2011. As a result only those born later than the 3rd of January will be eligible for a Junior ISA and any child that already has a Child Trust Fund will not be allowed switch over to the new form of account.

Children born before the introduction of Child Trust Funds in September 2002 are the exception to this rule, which is great news as parents whose kids missed out on the CTF era will be now able to have a Junior ISA instead.

Who Can Set Up a Junior ISA?

It is down to the parents rather than the government to set up a Junior ISA and, unlike the Child Trust Funds, the government will not help you to start up the account or contribute funds to it, the exception being looked-after children. (You can find about rules such as these in more details by reading the treasury’s draft regulations.)

Children are also able to set up Junior ISA accounts for themselves once they reach the age of 16.

How Much Can I Pay Into a Junior ISA?

Parents, Grandparents or anybody else with an interest in the child’s future can pay up to a total of £3,000 a year into the account, a significantly larger figure than the £1,200 that could be paid into a Child Trust Fund. This means that, if you have funds available to invest, more of your child’s nest-egg will be tax exempt than ever before.

Who Has Control Over the Account?

Whilst the parents are charged with managing the account and can, for example, move funds from a child’s Junior cash ISA to a shares based option, the extent of their control is limited.

Firstly, once funds have been paid into the account they are ‘locked in’ and cannot be accessed again by anybody other than the child whose name the account is in, and even they can only withdraw money once they reach 18.

Parents are also unable to control how or when their child will be able to access the money. On their 18th birthday the account will automatically become an ordinary ISA and control of it will be handed over to them. As a result they will have full and immediate access to all of the funds in the account.

Where Will I be Able to Get a Junior ISA?

Junior ISA will be available from November 2011 onward and will be provided by the vast majority of mainstream lenders, such as high-street banks and building societies.

Things have changed though, and your bank account options have never been as plentiful as they are right now. With banks competing against one another for customers, the banks have begun to market their products and services to appeal to different individuals.

Popular Current Accounts

Some of the today’s most popular choices include overdraft protection accounts, which allow you to pull money from another more secure account in order to protect against taking out too much money. These are popular because they help customers avoid the fees associated with spending too much money and also the hassle of going overdraft on their main bank account. These types of budgeting bank accounts, like thinkbanking’s current account in the UK are becoming increasingly popular with consumers wanting to manage their money more carefully.

Interest Paying Current Accounts

Most current accounts as an incentive to switch your account offer interest on the principal balance. Why shouldn’t you be able to make money if you are always in the black, its your money after all. The rates of interest can look good to start with, but check the small print as after a period of time your rate will probably be reduced. Interest rates on current accounts are typically very small, usually coming in at less than 1% in most cases.

Student Current Accounts

These accounts have taken off in popularity with the banks competing very competitively for student business. It has been shown that over 80% of people never switch their current account so if you start banking at college the bank is betting that you will say with them forever. These accounts have been designed to help students to learn the ropes of the banking and the personal finance industry. Most accounts will come with internet banking and automatic bill paying options accessible 24 hours a day, 7 days a week.

Offshore Current Bank Accounts

These have become very popular, not only do they have tax advantages; they are also available in foreign currencies these days like the Euro. They are subject to money laundering rules and regulations these days so expect to provide a lot of original documentation.

Do you really need a current account?

The answer is a simple yes. They make paying all your bills on time easy, they avoid carrying or hiding large sums of cash. You have a record of your finances receipts and payments and if you need to borrow money when looking to purchase your own home no financial institution would lend you money without seeing at least three months of bank statements.

There are many reasons to switch current accounts the main one will be that you feel you have been unfairly treated by your current bank or you can see that the overdraft or interest rates on offer would make changing accounts worthwhile. These days all your direct debits and standing orders are automatically moved across for you, so we would recommend finding a price comparison site seeing what is on offer if you have decided its time to switch.

Off shore banking is a practiced used in finance in which an individual or company transfers or deposits cash into a company in a different country.

This is done for two reasons.

• Other country’s bank’s sometimes have special interest rate accounts for out of the country business.
• Most off shore accounts come with taxation advantages.

Some individuals or companies will transfer funds into an off shore account in order to avoid the taxes in their country because the country that is being used has lower or no tax rates on bank funds.

Off shore banking regulations

Many times, other countries will not allow out of the country businesses or individuals to set up these accounts because they do not want to be used as a financial shield against taxation.

However, apart from governmental regulations, off shore bank accounts have very few restrictions. One of these being a minimum amount in the account; often off shore companies do not allow banking to be done by companies or individuals from other countries if they do not meet a certain dollar amount.

But because it is so expensive to set up one of these accounts, money usually is not an issue and will meet the minimum requirement with relative ease. Apart from this, there are no serious regulations in place for most off shore banks.

An off shore bank may refuse to do business with a company or individual for personal reasons, but this is not commonplace.

Difference between Personal and Business Off shore banking

There is not much difference between personal off shore banking and business off shore banking. However, several subtle intricacies are worth mentioning. One of these intricacies has to do with reasoning. There are many reasons why an individual would deposit personal funds into an account off shore; perhaps for tax reasons, perhaps for domestic, or marital reasons, or perhaps for interest bearing reasons.

As long as the individual has a certain dollar amount, there are few off shore banks that will refuse the business. However, when a business attempts to conduct off shore banking, there are many legal restrictions that must take place to ensure that the banking is for lawful reasons.

We should all save for a rainy day and for the larger items that we like to spend our money on like, holidays, cars, televisions.

Common types of savings accounts.

Easy Access Accounts

These accounts typically are accessible just as much as a checking account or a regular account in a financial institution. As personal savings accounts, they accrue very little interest in contrast to their more strict counterparts. However, their interest rates are still larger than other personal accounts such as a current account or regular accounts.

Notice Accounts

These personal savings accounts are accounts in which access to the funds within is restricted and a period of notice is required, usually one to three months depending on the institution. It is possible to withdraw funds from a notice account early, however, this gains a penalty usually a loss of the high interest rate that the account was earning.

Fixed Rate Bonds

These are personal savings tools in which interest rates are set at the period that the account is set up and remains the same no matter what common interest rates are during the time of its effect. Savers can buy a savings issue tied to bonds that will pay a set rate of interest for a period.

Regular Savers accounts

You have to commit to saving a set amount each month to achieve a higher rate of interest. You normally set up a direct debit or standing order to achieve this. There are normally restrictions on with drawing your money and the typical account allows you to with draw once a year.

Off shore accounts

These are accounts in which an account is set up by mail or over the phone and are normally in a tax haven, or an area of low to no taxation. These accounts are costly to set up, but because taxes are avoided, larger sums can be put into one account with no fear of legal fees.

When setting up a savings account it is very important to look for minimum deposits required, as you may not be able to get the high rate of interest as you don’t have enough to invest, hence your account won’t even be opened.

It is also important to look for withdraw restrictions because early withdraws, always carry penalties on the interest you were being paid, so if your account requires three months notice ensure that non emergency money is used.

A Child Trust Fund is a savings account for children in the United Kingdom, usually meant to be a long term investment. This Child Trust Fund was introduced by the United Kingdom government in an effort to ensure that all UK children have a savings account by the time they are 18.

This was also done in the effort to teach children the benefits of saving to help them understand and implement personal finance at a young age. Any child born on or after 1 September 2002 qualifies.

How Child Trust Funds Work

Any child born in the United Kingdom is given credit in their Child Trust Fund for £250. Then, when they turn 7, an additional £250 is added to the account, however, in order to be eligible, the annual family income of the home where the child lives must be below £15,575.

Relatives and friends can contribute to these savings accounts as well over the years until it matures, of up to £1200 a year. These Child trust funds can also be tax free in certain cases.

Until a child is the age of 16, their trust funds are managed by their legal parent or guardian. Once they reach the age of 16, they have the option to take control of their account, however, no money can be withdrawn from the account until the child is 18 years of age.

After control is taken of the account, the child is free to make decisions on investments and such for the account. Though the money cannot be cashed yet, it still can be bartered to make better interest.

When children reach the age of 18, they are free to keep the account intact, managing investments and such, or they may withdraw or transfer the funds to an alternative account with better interest bearings for example into an ISA.

The rules on child trust funds tend not to change but a full set can be found at their web site – Child Trust Fund Offical Site.

Benefits of Child Trust Funds

The benefits of child trust funds are clear. They are a good way to teach a child better management and investment with money. They are also good ways to save money for the life of the child after he or she comes of age. Overall, it is simply a smart investment.

Even a savvy saver can find the jargon around ISAs and tax-efficient savings daunting. If you’re thinking of moving your money but don’t understand what ISAs are or how they work, follow our handy guide to help you take advantage of tax-free savings and our best ISA deals from our range.

ISAs made easy

ISA simply stands for ‘Individual Savings Account.’

There are two are two types of ISA – Cash ISAs and investment ISAs.

What is a cash ISA?

A cash ISA is like a normal savings account but offers the following key benefits:

• The income you accrue from your cash ISA savings is tax free.
• Interest earned in a cash ISA can be up to six times higher than the bank rate depending on the current promotional offers available to savers.*
• You can opt for an instant access cash ISA, which means you can access your money if you need to at any time.

What is an investment ISA?

An investment ISA is a tax efficient wrapper for your investments which have certain qualifying criteria. (I.e. You must be at least 18 for an investment ISA and resident and ordinarily resident in the UK for tax purposes.)

If you deposit funds in an investment ISA (also known as a stocks and shares ISA), your money will be invested in the stock market.

Investment ISAs are free from capital gains tax and income tax but the tax credit on dividend income received is not reclaimable. Investment ISAs have the potential to outperform cash savings but you need to be aware that, as these ISAs operate within the stock market, their value at any given time can fluctuate as returns depend on the performance of the underlying investments – so you can lose money as well as make money.

Before moving your money, you may want to consult your financial adviser to identify the best ISA deals and investment plan to suit your needs.

Remember, eligibility for ISAs depends on your individual circumstances, and the rules around them – such as their tax treatment – could change in the future.

How much can I invest?

All UK nationals have an annual ISA allowance of £10,200.

• You can put up to £5,100 of your £10,200 annual allowance in a cash ISA.
• You can invest the remainder of your allowance (£5,100) in an investment ISA.
• You can spread your allowance across both cash ISA and an investment ISA. For example, you could put £2,200 in a cash ISA and invest £8000 in shares.
• You are able to invest the full £10,200 in an investment ISA.
• The annual ISA allowance will increase to £10,680 (of which up to £5,340 can be saved in a cash ISA) for the next tax year, which starts on 6 April 2011 and ends on 5 April 2012.

It’s important to think about your attitude to risk before investing in an investment ISA because the returns are not guaranteed, and you may end up with less money than you originally put in because the value of investments can go down as well as up.

This article has been written for information and interest purposes only. The information contained within this article is the opinion of the author only, and should not be construed as advice or used to make financial decisions. Expert financial advice should always be sought and any links contained within this article are included for information purposes only.

Footnotes

* Barclays Research ‘Consumers set to lose out on cash ISA allowances.’ (25 Mar 2010)

Barclays is a major global financial services provider engaged in retail banking (bank accounts and instant access savings accounts), credit cards, corporate banking, investment banking, wealth management and investment management services, with an extensive international presence in Europe, the Americas, Africa and Asia. With over 300 years of history and expertise in banking, Barclays operates in over 50 countries and employs over 140,000 people. Barclays moves, invests and protects money and provides business bank accounts, online loans, home insurance, life insurance, a mortgage calculator, guides on how to buy shares and other services for over 49 million customers and clients worldwide. For further information about Barclays, please visit our website www.barclays.co.uk.

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