British Government Stocks (gilts)

Where from? Stockbrokers or other investment advisers, or the National Savings Stock Register. New issues of stock through newspapers.

How they work You invest a lump sum. You can choose to invest for a fixed time (until 'redemption', though there are a few stocks with no set redemption date) for a fixed return. The return is made up of two parts interest (the 'coupon') and a capital gain (or loss) on redemption. If you don't want to keep your stocks until redemption, you can sell them on the stock market. The amount you get back then depends on the market price of the stock which will rise and fall (depending mainly on the general level of interest rates) - so in this case, your return is not fixed at the time you invest.

A variation is index-linked British Government stocks. These are similar to conventional stocks, but both the income and the amount that you get back at redemption are increased in line with inflation throughout the life of the stock.

Minimum investment In theory none. In practice, dealing costs are disproportionately high if you trade less than, say, £4,500 of stock through a broker or adviser. Use the National Savings Stock Register if you want to buy or sell smaller amounts.

Maximum investment £40,000 a day per stock if you deal through the National Savings Stock Register, otherwise none.

Tax Interest is subject to income tax and is usually paid with basic rate tax already deducted. Non-taxpayers can reclaim the tax already paid. Capital gains are tax-free. If you buy stocks through the National Savings Stock Register (in other words, through the Post Office), interest is paid without tax deducted.

Good for Different stocks have different balances of income and capital gain or loss, so can suit a wide range of investors. People looking for a regular income should choose high coupon stocks. Higher rate taxpayers and anyone seeking tax-free capital gains should consider low coupon stocks. Anyone who wants a fixed return and can leave their money invested. People who can take a chance on movements in the market (by buying and then selling before redemption). Index-linked stocks are good for anyone who needs at least part of their investments to keep pace with inflation, and are good for higher rate taxpayers.

Bad for Anyone who might need their money back at short notice. Index-linked stocks are not suitable for people seeking a high income.

WARNING Buying and selling British Government stocks

through the National Savings Stock Register is cheaper if you are dealing in small amounts. But you have to place your instructions by post which is slower than using a broker or adviser and also means that you don't know in advance the price that you'll buy or sell at.


Read more about Protection Against Excessively High Interest Rates

Local Authority Loans

Where from? Local authorities.

How they work You invest a lump sum for a fixed amount of time anything between one and ten years - and get a fixed rate of interest. Interest is usually paid half-yearly, but with some loans it accumulates and is paid out when the loan comes to an end. If you cash in early, you might not get back the whole of the lump sum you invested.

Minimum investment Varies, for example £1000 or £4,000. Maximum investment Varies.

Tax Interest is paid with the equivalent of basic rate tax deducted. Non-taxpayers can't reclaim the tax.Local Authority Loans


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