Are gilts better than cash ISAs?

Published by Rebecca Atkinson on 23 June 2009.
Last updated on 23 August 2011


"Is it worth investing £3,600 in government bonds (gilts) instead of a cash individual savings account? If it is, how do I do this and which bonds or funds would you recommend?"

Ask the Professionals: Nick McBreen, an independant financial adviser at Worldwide Financial Planning, Cornwall, says:

Your question raises several key issues. You ask if it’s worthwhile investing £3,600 [the current cash ISA allowance, which increases to £5,100 on 6 October 2009 for the over 50s and April 2010 for everyone else] in gilts but make no mention of what you want from your 

Is your objective capital gain or are you looking for income?

Bonds are currently being vaunted by some financial pundits as the ‘holy grail’ for investors who are looking for an income without risk. But while gilts offer a high degree of security, they currently have very low yields. The problem, therefore, lies in reconciling the value of the bond to you with the volatility in the cost of living and 
inflation going forwards.

My advice is to establish what you’re trying to achieve with this capital, the level of risk you’re willing to take, and the timeframe you’re working within. It’s only when you fully understand the nature of the investment you’re considering, and the risk, that you can make a sensible decision.

How you make your investment is also key to your financial planning. So if you already have an independent adviser, then seek their advice first. If not, you could consult a stockbroker or use an online facility from one of the many providers offering this service for self-select investments.

Alternatively, have a look at the National Savings & Investments website and consider its range of index-linked certificates and guaranteed bonds.

Just remember you can still take advantage of the ISA tax break by putting your bonds into a stocks and shares ISA.

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