My New Favourite Thing is investment bonds.

Why? The last Federal budget has now put limits on how much we can put into super. So where can we put surplus cash now? Investment bonds. They are also called insurance bonds.

Investment bonds actually pre-date superannuation, and before super arrived they were much more popular. So much so that quite a few providers have withdrawn from the market. But not all and there are newer providers out there.

They also have a lot more versatility than super.

How Investment Bonds Work

Investment bonds have a marginal tax rate of 30% – the effective tax rate is often lower than that.
They have a term of 10 years. So if you put money into an investment bond, and leave it there for 10 years, you will not have to pay any more tax on it – it is Tax Paid.
If you have to take the money out before the end of the 10 year period, you may get a 30% tax rebate. During the ninth year two thirds of your income is counted, and during the tenth year one third of your income is counted.

You can contribute up to 125% of your contribution from the prior year each year and still be within the ten year window. This makes them ideal for saving for, for example, children’s education costs.

You can invest in a wide range of asset classes within investment bonds – just as you can with your super fund.

Another benefit is that if you have adult children, they can inherit your money without paying taxes – unlike the heavy tax applied from a super fund.

A Versatile Product

One of the great things about investment bonds is that they can be used for many different purposes. The main ones are:

1) Saving for a child’s education
2) A savings strategy outside of super that can be accessed before you retire
3) A vehicle for saving money once you are too old to contribute to super
4) An alternative savings vehicle for high income earners

If this is of interest, talk to a trusted and qualified financial planner who has some experience and knowledge in this area (many won’t).