Why Are Investment Bonds a Lump-Sum Product?

Ian Lewis[1]

Ian Lewis

Money Savings Advice Why Are Investment Bonds a Lump-Sum Product?

Investment Bonds are often known by a slightly longer name. You might have heard of them specifically being called Lump Sum Investment Bonds. What exactly does Lump Sum mean, and why might it affect whether or not you choose Investment Bond products?

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What is a Lump Sum Investment?

A lump sum investment is one that’s made with a singular up-front payment.

Many savings products, including ISAs, can be topped up at different times. Some products have annual limits, whilst others are open to regular or frequent deposits of any amount.

With a lump sum-product, like Lump Sum Investment Bonds, you can’t top up your account. The amount you pay in when you set up the account is the amount that you’ll be investing, without the option to add more money over time or further down the line.

Are All Investment Bonds Classed as Lump Sum Products?

Almost all Investment Bonds are classed as lump-sum products. You can’t usually choose to invest a bit of money now, then add to your investment in future. Typically, all money that is being invested must be paid upfront for any Investment Bond.

In very rare cases, some providers may be able to accept additional payments. However, there are several hoops to jump through if you want to top up your investments. On the rare occasion that this option is offered, there may be several forms to fill in, and you’ll need to be clear about where you want the additional money to be invested. Providers, even where this option is offered, will reserve the right to reject additional payments.

What If I Want to Invest More Money in Future?

You can have as many Investment Bonds as you like. You can’t usually add to an Investment Bond at a later date, but you can choose to take out another Investment Bond at any time. Some people have several different products, with one provider or more, and this could even be beneficial if you want to diversify investments.

How Much Is the Lump Sum?

Different Investment Bond providers will have different investment requirements. For most providers, the minimum investment is around £5,000 to £10,000. Maximum investments could be as high as £250,000, whilst some providers will even provide products with no investment limit. Of course, in all cases, you must deposit all your money in one go.

In rare cases, you can invest less than £5,000. Some providers of Investment Bonds will accept deposits as low as £500.

What About a Lump-Sum Withdrawal?

Whilst you're expected to invest a lump sum, it usually isn't a good idea to treat withdrawals the same way.

You have the option to make annual withdrawals. To avoid tax liabilities, you must withdraw no more than 5% of each financial year's original investment value. 

You can choose to fully cash in your Investment Bonds. If you choose this option, then you'll pay tax on your investment gains, with your provider calculation your tax liability. You'll be required to report your gains to HMRC, where they'll be treated as income and be taxed accordingly.

Some providers apply early cash-in charges, so be prepared to pay a fee if you cash in your Investment Bonds. All the relevant fees and charges will be listed in the Terms and Conditions.

Gains on your Investment Bonds will already have been taxed at 20%. If you're a Basic Rate taxpayer, this usually means that there is no additional tax to pay when you choose to cash in your bonds. If your gains have taken you into a higher tax bracket, then you may have additional taxes to pay.

Is a Lump Sum Investment a Wise Choice?

Before making a lump sum investment, be sure that you have the money spare. This doesn't just mean checking that the money is sitting in your current account but also making sure that there's no way you'll need it in the next few years at least. If emergency repairs to your house or car could leave you short of cash, the money isn't spare to be used for a lump sum investment.

If you might like the flexibility to pay in slowly, other types of savings product might be far better suited to your needs. If you haven't used up your annual ISA allowance, this could be a more convenient way to save and help your money grow. With products like ISAs, you can add more money every month. If you think you'll have £10,000 spare, but you want to keep some back for emergencies, with a product like an ISA, you can invest £5,000 and then add the rest once you're more confident. With an Investment Bond or other lump sum-product, there's no going back from your investment decision once you've made that financial commitment.

A lump sum investment is only a good idea if you can be sure that the money is available and won't be needed elsewhere.

If you're ready to make a lump sum investment into something like an Investment Bond, you should also make sure that you're entirely happy with the provider you've chosen and the funds that you're choosing to invest in. Transfers are an option, but a lot of extra hassle could easily be avoided if you've done your research in advance.

Money Savings Advice Tip

If you feel your investment bond was mis-sold then you could be entitled to thousands in compensation. Our top tip is to get expert compensation advice from a compensation specialist and Money Savings Advice can help you.

Check the Financial Services Register

With a lump sum investment, you're handing over a lot of money in one go. You need to be sure that you're giving your money to a trusted and responsible provider. Don't become a victim of a scam, adding to an estimated £1.2 billion that's lost on investment scams each year.

Before investing your money, it's always a good idea to check the Financial Services Register and make sure that a provider is genuine. Providers of Investment Bonds are regulated by the Financial Conduct Authority, which means that they'll be listed on the register so you can keep your money safe.

If you’re in any doubt about the validity of any financial provider, don’t agree to send a large amount of money to make a lump sum deposit.

Mis-Sold Investment Bonds

If your provider is legitimate, but you still feel that you’ve been mis-sold your lump-sum investment, then you might want to consider a claim. It might not have been fully explained to you that you couldn’t adjust your investment, or the fees might not have been laid out to you clearly.

Lump-sum investments are an inherent risk, and if the product sold to you wasn’t suited to your situation, then you should look into claiming compensation to put your pack at the financial position you would’ve been in, had the advice been more suitable to you.

How Can Money Savings Advice Help You Check If You Are Due Compensation?

Here at Money Savings Advice, we have partnered with some of the UK’s leading Financial Claims management companies. They have already helped thousands of people claim compensation for a mis-sold investment bonds and they can do the same for you.

Choosing an independent claims management company means they won’t proceed with a claim unless they are sure it is in your best interests. They are also regulated by the FCA, which gives you an additional layer of protection.

If you would like to speak to one of these claim management companies who can help you make a compensation claim, then click on the below and answer the very simple questions.

Money Savings Advice Author Ian Lewis

Ian Lewis

Ian Lewis is one of our specialist financial writers. Ian has over 15 years of financial writing experience, having worked for some of the largest financial publications in the UK covering topics from mortgages, equity release, loans and financial claims, to name a few.

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