The monthly way to wealth

Tax-free corporate bond Peps are ideal for parents saving for their children's higher education

Don't look bored and try to change the subject if someone tells you they are putting money into a corporate bond Pep. Sit up and take notice, because they are probably earning more than 7 per cent tax free.

This means that their savings are growing at twice the rate of inflation - with a lower level of risk than is involved in most Peps and other investments linked to the stock market.

That's because these Peps don't put your money into shares, they put it into fixed-interest bonds which are issued by leading UK and international companies such as Tesco and BT to finance the expansion of their business.

Corporate bond Peps are a recent arrival in the investment market, but in less than 18 months they have collected more than pounds 1.4m from about 250,000 savers who are attracted by the tax-free earnings. You can buy them from many of the major fund managers, including high street names such as Abbey National and particularly the Woolwich, which has targeted savers whose first Tessas are maturing, attracting more than pounds 130m in its first six months.

The top-performing corporate bond Pep over the past 12 months is Abtrust's fixed-interest fund, while other strong participants include offerings from Virgin, M&G and Fidelity.

But before you form a queue, there are a few points worth considering. These are investments that generally offer a steady, tax-free income rather than spectacular capital growth. Although the risk is lower than with shares, it is still there. The wealth warning still applies: the value of your investment and income earned can go down as well as up. And because you are investing your money in a managed fund, you have to pay the manager to look after it. Look carefully at the charges.

However if you do think that corporate bond Peps are right for you, remember that many of them offer monthly savings plans as well as taking lump sums. You can invest in the top-performing Abtrust fund, for example, for as little as pounds 25 a month. Increasing numbers of unit trusts and investment trusts offer regular savings plans packaged in a Pep. This ensures that all the gains on your investment are paid to you free of tax - which adds up to a healthy "bonus" on your investment.

Regular saving is not just about building a nest-egg for your own enjoyment. One of the increasingly important roles for long-term savings plans is to fund children's higher education. As the value of student grants declines, parents face bigger bills. According to a recent survey by Asda, the supermarket chain, it costs more than pounds 17,000 to put a student through a typical three- year university course. In response, the fund manager Barclays Unicorn is offering its tax-free savings plan as an ideal way to meet the cost. Parents who had children in 1980 and invested the child benefit payments - pounds 19 then, and pounds 43 now - every month with Barclays Unicorn General Trust would now have a lump sum of pounds 18,300.

But to illustrate the benefit of tax-free status, had the Trust been available as a Pep, that same investment of child benefit over 16 years would now be worth more than pounds 20,000

News
Denny Miller in 1959 remake of Tarzan, the Ape Man
people
Arts and Entertainment
Cheryl despairs during the arena auditions
tvX Factor review: Drama as Cheryl and Simon spar over girl band

News
Piers Morgan tells Scots they might not have to suffer living on the same island as him if they vote ‘No’ to Scottish Independence
news
News
i100Exclusive interview with the British analyst who helped expose Bashar al-Assad's use of Sarin gas
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
Sport
Angel Di Maria celebrates his first goal for Manchester United against QPR
Football4-0 victory is team's first win under new manager Louis van Gaal
Arts and Entertainment
art
News
newsIn short, yes
Arts and Entertainment
Rob James-Collier, who plays under-butler Thomas Barrow, admitted to suffering sleepless nights over the Series 5 script
tv'Thomas comes right up to the abyss', says the actor
Arts and Entertainment
Calvin Harris claimed the top spot in this week's single charts
music
Sport
BoxingVideo: The incident happened in the very same ring as Tyson-Holyfield II 17 years ago
News
Groundskeeper Willie has backed Scottish independence in a new video
people
Arts and Entertainment
The Doctor poses the question of whether we are every truly alone in 'Listen'
tvReview: Possibly Steven Moffat's most terrifying episode to date
News
i100
Life and Style
Cara Delevigne at the TopShop Unique show during London Fashion Week
fashion
News
The life-sized tribute to Amy Winehouse was designed by Scott Eaton and was erected at the Stables Market in Camden
peopleBut quite what the singer would have made of her new statue...
Sport
England's Andy Sullivan poses with his trophy and an astronaut after winning a trip to space
sport
News
peopleThe actress has agreed to host the Met Gala Ball - but not until 2015
Finacial products from our partners
Property search

Leaving money to charity in your will could help reduce the tax bill for your loved ones

Next week has been designated "remember a charity in your will week", to put the focus squarely on the subject

Two million first-time buyers are locked out

The drought in lending to people with low deposits has created legions of frustrated buyers, writes Emma Lunn
Money is slipping through our fingers: the UK is falling behind other countries in the amount we put away

How to save money: UK is crashing down the European league table for putting money away

The UK has slipped to 11th in the latest European league table of savers. Rob Griffin checks out the best options

Energy firms found guilty of bad practice could have licences revoked under Labour government

Caroline Flint, the shadow energy secretary, says a Labour government would create a new energy regulator

A student's guide to financial survival: You don't have to drown in debt at university

Fresh from A-level delight, the moment does not have to be soured by students resigning themselves to thousands of pounds worth of debt in three years' time. Rob Griffin sees how to pass the university challenge

'Dismal' eurozone data sparks concerns

European Central Bank chief Mario Draghi is under pressure to launch promised stimulus before the EU slides further
Love but not marriage: property is one area where cohabiting couples are in danger of losing out

How couples can protect their financial interests when cohabiting

People who simply live together cannot assume they have the same rights to each other's assets as spouses or civil partners. Michelle McGagh sees how they can protect their financial interests

India could be jewel in the crown for investors

With a new government and an ambitious prime minister, the country offers the prospect of strong returns. But there may be hiccups ahead, warns Simon Read
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    SQL Developer - Watford/NW London - £280 - £320 p/d - 6 months

    £280 - £320 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

    Senior BA - Insurance **URGENT**

    £400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

    Training Coordinator / Resource Planner - City, London

    £35000 - £38000 per annum + Benefits: Ashdown Group: Training Coordinator / Pl...

    Data Governance Manager (Solvency II) – Contract – Up to £450 daily rate, 6 month (may go Permanent)

    £400 - £450 Per Day: Clearwater People Solutions Ltd: We are currently looking...

    Day In a Page

    These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

    Widespread fear of Isis is producing strange bedfellows

    Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
    Topshop goes part Athena poster, part last spring Prada

    Topshop goes part Athena poster, part last spring Prada

    Shoppers don't come to Topshop for the unique
    How to make a Lego masterpiece

    How to make a Lego masterpiece

    Toy breaks out of the nursery and heads for the gallery
    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
    Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

    Ian Paisley’s decision to make peace with his IRA enemies

    His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
    'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

    'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

    Exclusive extract from Janis Winehouse's poignant new memoir
    Is this the role to win Cumberbatch an Oscar?

    Is this the role to win Cumberbatch an Oscar?

    The Imitation Game, film review
    England and Roy Hodgson take a joint step towards redemption in Basel

    England and Hodgson take a joint step towards redemption

    Welbeck double puts England on the road to Euro 2016
    Relatives fight over Vivian Maier’s rare photos

    Relatives fight over Vivian Maier’s rare photos

    Pictures removed from public view as courts decide ownership
    ‘Fashion has to be fun. It’s a big business, not a cure for cancer’

    ‘Fashion has to be fun. It’s a big business, not a cure for cancer’

    Donatella Versace at New York Fashion Week
    The fall of Rome? Cash-strapped Italy accused of selling its soul to the highest bidder

    The fall of Rome?

    Italy's fears that corporate-sponsored restoration projects will lead to the Disneyfication of its cultural heritage
    Glasgow girl made good

    Glasgow girl made good

    Kelly Macdonald was a waitress when she made Trainspotting. Now she’s taking Manhattan
    Sequins ahoy as Strictly Come Dancing takes to the floor once more

    Sequins ahoy as Strictly takes to the floor once more

    Judy Murray, Frankie Bridge and co paired with dance partners
    Wearable trainers and other sporty looks

    Wearable trainers and other sporty looks

    Alexander Wang pumps it up at New York Fashion Week
    The landscape of my imagination

    The landscape of my imagination

    Author Kate Mosse on the place that taught her to tell stories