Long term investments: Making the right choices

The confidence of the populace in their banks has taken a real battering over the past few years, and most people are taking more care in considering where to to put their savings.

There are few who can afford to lose what little they have, and many serious questions are asked before making a commitment to place their hard-earned money into a savings account.

So, what are the best options? The highest rates are naturally provided by bonds.The choices are varied and it pays to take a close look at what is actually involved. There are several possible choices of savings bonds.

The first category is fixed rate savings bonds. This type of investment is available for terms of one, two, three and even four or more years. Obviously, the longer the term chosen, the higher the typical AER. This does, however, assume that the potential saver is able to put his or her money away for the agreed term without requiring access to it until the specified term time has elapsed.

People also need to be aware that many bonds have rather large requirements when it comes to the minimum sum to be invested, frequently between £25,000 and £50,000. The highest possible rates are achieved with long term, four or more year options.

While the shorter term deals do promise comparatively good rates for high investment levels, it must be said that in the case of those where smaller initial deposits are required, AERs are little better than you would find with other, more accessible choices.

Another type of bond is known as the alternative bonds. While usually requiring very high initial deposits, some of these deals offer exceptionally favourable rates of up to five per cent, and most of them will either see a fixed rise in rate each year, or will track the base rate of the Bank of England.

An excellent opportunity to provide for one's offspring are the many offers involving savings for children. These deals offer a range of choices, from fixed term variations, usually over one year, three years or until the child turns 18, to instant access choices.

Most of the one year deals are regular saver options that can be started with a minimum of £10 and require regular input of funds. These options do not allow funds to be withdrawn during the specified period.

Others can be put into action with as little as £1. The rates are quite favourable and while some of the instant access versions are a good way to introduce a new generation to responsible saving, the long term deals that do not allow access to funds until the child's 18th birthday are an excellent way to secure funds for a possible further education.

Of course, even with these accounts it is best to investigate the various available choices and study them in detail.

A good tax effective choice is the individual savings account, which is what the ominous sounding ISAs are. These are available in both instant cash or fixed rate cash versions.

Instant cash options offer rates of up to 3.05 per cent and, as the name suggests, allow instant access to funds as and when required, although some deals do require previous notice of up to 120 days, which can be a problem if the money is needed for an emergency. This is therefore something that needs to be carefully considered before making any commitment.

It is also a good idea to pay attention to minimum initial deposits, as some of them do ask for a rather large minimum investment. Evaluating the level of access to your account is equally advisable, as many can only be reached through online or telephone contact, while others can be accessed through local branches or the post office.

The maximum investment in these options per year is £5,340 and the benefit, unlike standard accounts, is that the interest is tax free..

The fixed rate isa can offer rates comparable to some of the bond options. Again, there will be a minimum investment caveat, usually between £500 and £1,000, although some can be started with less.

Terms vary from fixed one year short term options to two year medium term deals into the long term options, which start from three years onwards. Naturally, the rates offered on long term deals are better than those for the short term investments.

It is interesting to note that some of the higher investment long term options offer rates equivalent to those of comparable bonds. Whichever opportunity is chosen, mid term withdrawals are generally not possible. Where they are possible, a loss of interest is usually applied as a penalty charge.

As always, your investment plan must suit your circumstances. It pays to thoroughly research what the current financial market has to offer and to compare the products of each individual institution.