Investment products
If you’re considering investing your money, it can help to feel confident and informed about which options you have, and how each of them works. Some are more complex than others, but they’ve all got benefits and risks. Remember, never invest more than you can afford to lose, and seek independent financial advice whenever possible. Read on for a rundown of seven investment products. The value of an investment can go down as well as up and you could get back less than invested.
Investment risks
Before investing in any financial product, you should carry out extensive research, consider your financial goals and risk tolerance, and seek financial advice.
- Investing is an unpredictable process, which means your money may lose value as the markets rise and fall.
- No matter how well managed, market volatility means earnings aren’t guaranteed.
- Market dips and management fees can eat away at profits.
- Investing might not be right for you if you need to access your cash immediately, since any early surrenders or withdrawals will affect your payout.
Imagine your investments like a rollercoaster – it's got its ups and downs! Sometimes you'll feel the rush when you're up, but at times, it's stomach-stopping when you're down. Your investments can soar high or dip briefly, and you might not get back what you invested in.
1. Stocks and shares ISA
Required knowledge level: Beginner to intermediate
These give you a tax-efficient way to access global financial markets. As of 2024-25, you can open one account per financial year (April 6 – April 5) and invest up to £20,000. Tax benefits are subject to change.
It's possible to invest in shares, funds, investment trusts, and bonds, either by yourself or through a fund manager who works to your chosen risk level. Bear in mind there will be a charge for this service, and it isn't a suitable option if you’re seeking short term returns.
To learn more, explore our stocks and shares ISA.
Benefits:
- You won't be taxed on any investment gains you make.
- Cash is available whenever you need it, as it’s not locked away.
Risks:
- Investing is an unpredictable process, which means your money may lose value as the markets rise and fall.
- Not suitable if you're seeking short-term returns.
2. Workplace pension
Required knowledge level: Beginner
You’ll automatically join your employer’s workplace pension if you’re between 22 and state pension age, and you earn at least £10,000 per year. This is known as auto-enrolment. You can opt-out whenever you like, although any money paid in will have to remain in the pension if you opt-out after 30 days.
By investing at least 5% of your wage, your employer then adds at least 3%.
Basic and nil-rate taxpayers qualify for 20% tax relief. The government will add 20% tax relief to your personal contributions – so if you pay in £80, they’ll contribute an extra £20, meaning you’ll save £100 in your pension. If you’re a higher or additional rate taxpayer, you might be able to claim more tax relief.
Each year, you’ll have a limit on how much you can pay into your pension without a tax charge applying. This is called the annual allowance. It’s currently set at £60,000, however it will be lower if you earn above a certain amount, or you’ve already flexibly accessed some of your pension pot.
You have very little control over how your pension pot performs, but you should be able to choose between default or self-select funds, letting you increase or decrease your risk. Tax benefits are subject to change, interpretation and depend on the individual’s circumstance. Dig deeper into tax relief on pension contributions here.
Benefits:
- Employer contributions help fill your pension pot faster.
- A great option if you’d rather not make investment decisions, as it’s managed by professionals on your behalf.
Risks:
- You have very little control over how your pension pot performs, but you should be able to choose between default or self-select funds, letting you increase or decrease your risk.
- You won't be able to access your money until you retire. If you withdraw it earlier, you'll pay Income Tax at a rate of 55% .
3. Personal pension
Required knowledge level: Experienced (if managing funds), otherwise, intermediate.
A personal pension is like other pensions, except you control how much and how often you contribute.
The type of personal pension we offer is a self-invested personal pension (or SIPP). You can open multiple SIPPs with a range of providers, and you're free to invest in a lot of assets. The investment options will differ depending on the provider.
As well as offering flexibility, a SIPP also offers tax benefits such as the tax relief explained above for workplace pension contributions. The government will add 20% tax relief to your personal contributions – so if you pay in £80, they’ll contribute an extra £20, meaning you’ll save £100 in your pension. If you’re a higher or additional rate taxpayer, you might be able to claim more tax relief.
Each year, you’ll have a limit on how much you can pay into your pension without a tax charge applying. This is called the annual allowance. It’s currently set at £60,000, however it will be lower if you earn above a certain amount, or you’ve already flexibly accessed some of your pension pot.
You’ll be able to take money from your personal pension when you’re aged 55 or over (57 from 6 April 2028 unless you have a protected pension age). You may also be able to access your pension earlier if you suffer from ill health or serious ill health.
Discover more about a self-invested personal pension (or SIPP).
Benefits:
- You can reduce your taxes by deferring some of your gross earnings in exchange for an employer contribution – known as salary sacrifice, it's a benefit offered by many employers.
- Flexible investment options depending on your needs and risk appetite.
Risks:
- Market dips and management fees can eat away at profits.
- Inexperienced investors are at risk of scams or poor investment decisions.
Check out six simple tricks to help you boost your pension.
4. Bonds
Required knowledge level: Experienced (if managing trades), otherwise, intermediate.
Bonds are loans that governments and corporations issue to raise money. In return, the issuer agrees to repay the initial investment plus interest (or coupon) on a specified date (maturity). Bonds are usually a medium to long-term investment, so you should expect to put your money in for at least five to ten years.
You should be aware of interest rate changes. For example, the value of a bond paying 5% interest will drop if the Bank of England’s base rate rises, and so interest rates go up. As new bond buyers have options with a higher coupon, the 5% bond is discounted. Also, if the bond issuer goes bankrupt, you might lose some or all of your original investment and interest.
In general, bonds with longer maturity dates are considered riskier, offering higher coupons to attract buyers.
Benefits:
- As a result of their lower risk, they can serve as a balancing tool, diversifying the range of investments in portfolios.
- Bondholders get paid before shareholders if a company collapses.
- Bonds are sensitive to interest rates. If the rate goes down, the value of a bond will go up.
Risks:
- As stated above, bonds are sensitive to interest rate changes. Conversely to the benefit above, a bond can lose value if interest rates go up.
- There is default risk. If the issuer of the bond (government or business) goes bankrupt and can't afford to pay back the money, bondholders may lose some or all of their original investment and interest.
Learn more about our bond investment service.
5. Shares
Required knowledge level: Intermediate to advanced
Company directors issue shares to support the growth of the company. They can be bought and sold by investors, either privately or to the public, depending on the type of company. However, if a business fails, shareholders may lose all or part of their investment, as their share price depends a lot on company performance. Other factors can also affect share price performance, such as the economy, political risk, global conflict and the impact of health crises' such as Covid.
Most private companies only offer ordinary shares, granting shareholders equal equity and dividend rights as a way to reward loyalty. However public company shares are traded on stock exchanges, giving investors the chance to benefit from growth and profits. The price of a company share depends on the level of supply and demand. When you buy and sell shares often, fees associated with any purchases and/or sales of shares can add up quickly.
Benefits:
- Some companies pay dividends to holders of the shares, which offer a reliable way to generate income (money you can earn without doing any work).
- Trading platforms give investors easy access to a wide range of company shares to buy and sell.
Risks:
- If a business fails, shareholders may lose all or part of their investment, as their share price depends on company performance.
- When you buy and sell shares often, fees can add up quickly.
Learn about our share dealing services.
6. Funds
Required knowledge level: Beginner to intermediate.
These pool money together from several investors to buy assets, such as stocks, also known as company shares.
In return for a fixed commission, a fund manager decides how to distribute investors' money across a range of assets. Because the investment value is spread across a number of different companies' shares, they are considered a less risky alternative to individual shares. If you don't understand a fund's risk, historical performance, and how much time an investor is expected to wait before selling, your investment might not be right for you.
Benefits:
- You can access your money when you need to, which is particularly useful when the value of the fund fluctuates.
- You can take advantage of professional fund managers' investment expertise at a relatively low cost (for as little as less than 1% per year, depending on the fund).
Risks:
- No matter how well managed, market volatility means returns aren't guaranteed.
- You need to research a fund's risk, performance and the expected investment horizon before investing.
Learn about our fund investment services.
7. Endowment policies
Required knowledge level: Intermediate to advanced
A complex contract which usually lasts between 10 and 20 years, offering a life insurance policy alongside an investment product.
It pays out a lump sum at the end based on any profits made from investments. The lump sum’s value isn’t guaranteed as it depends on unpredictable factors such as investment performance. Sometimes you'll be paid a bonus, either annually, irregularly, or at the end of the term. If you die before the term is up, a beneficiary such as a spouse, would receive the lump sum.
Benefits:
- It can be an efficient way of securing a tax-free pay out for yourself and/or your estate, whilst also potentially boosting your investment’s value.
- A relatively reliable way to save for a specific financial goal, like clearing a mortgage. Their fixed duration can make it easier to plan for the future.
Risks:
- Might not be right for you if you need to access your cash immediately, since any early surrenders or withdrawals will affect your payout.
- The lump sum's value isn't guaranteed as it depends on unpredictable factors such as investment performance.
