Are Government Bonds a Good Way to Invest?

Image courtesy of TheKarenD
Image courtesy of TheKarenD

If you are looking for investments then you will see that it is possible to buy government bonds. Many people like things about them, but there are disadvantages as well. It is worth considering both sides in order to decide whether it is something that you would like to invest in. It will depend on how much money you have to invest, how long you want to invest it for and how much risk you want to take with it.

Government bonds are a safe way to invest. There is no risk of losing your money, or at least very little as they are backed by the government. You bond is a loan to the government and when the term of the loan ends it will be paid back to you and you can choose whether to take out more or not. The fact that the investment is so safe is a big attraction to many people. They may pay more interest than normal savings accounts so they could be well worth considering if you want an investment that is really safe but has a reasonable return. You also have the satisfaction of knowing that you are helping the government by lending them money which will be used to pay for services and other government spending.

One of the main disadvantages of government bonds is that they do not give as high a return as other investments. You could put your money into things that could potentially give you a much better return. Stocks and shares and property are popular choices which can have big returns. However, there is no guarantee with these, you may even lose more money than you have put in, so if you withdraw your money after a few years, you could end up having less than you started with. This risk is reduced the longer you have your money invested and so if you leave it in for a decade or more, you are more likely to make a good return but you still risk that it will not make you any money back. There are even some investments when you may end up getting nothing back and perhaps having to pay even more in. If you make a withdrawal through your government loan, you may find that you face a penalty or a lowered interest amount, although this is common with other investments in bonds as well.

It is therefore worth considering how much risk you are prepared to take. If you do not like the idea of taking a risk, then it is probably wise to avoid investments that are risky, particularly short term ones. It is sensible to put your money in safer accounts and government bonds could be a good solution as well. Compare the rates to other types of savings and see which you think you like the look of. It is worth noting whether the interest is fixed or variable as well, because a variable rate is at risk of going down, however a fixed rate may keep your interest at too low a rate if interest rates rise.

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Rachel Henderson is a professional freelance writer from the UK. She writes on many subjects but specialises in personal finance. As well as contributing to various blogs and websites she has her own website tracking her own money making process http://www.turnonepoundintoonemillion.com and sells her books through http://www.bowbridgepublishing.com.

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