Established in the 16th century, friendly societies have traditionally provided the poorer members of society with an efficient way of saving for cover against sickness or accident. Today, around 8 million people make regular savings to these mutual organisations, which now number more than 350 and have almost pounds 9bn under management.
Much of this money is held in what are called friendly savings bonds. Any gains from these bonds are free of both capital gains tax and income tax, so long as the bond is held for at least 10 years. This means the bonds may not be appropriate for more elderly investors.
Generally, the bonds are invested in a shares or a mix of shares, gilts and property, though some are based on building society deposit accounts.
Marion Poole, secretary-general of the Association of Friendly Societies, says: "Once you have got to year 10, the proceeds are tax-free. You can either take the maturity value or roll over the gains."
There are catches though. Contributions are limited to just pounds 25 per month or pounds 270 per year. However, you can take out a bond for each member of your family. Note too, that the tax benefits are on top of your annual PEP allowance and any other tax-free investments.
It is, however, difficult to obtain information on the past performance of these bonds, as only three of the top seven friendly societies have offered the product for 10 years or more.
On top of this, comparisons between the three societies with a performance track record of any real length - Family Assurance, Tunbridge Wells Equitable and Homeowners - are tricky because the maximum contributions have been adjusted three or four times in the past 10 years.
Assuming you could have invested pounds 25 a month in Family's unit-linked bond for the past 10 years, it would now be worth pounds 4,062 - pounds 1,062 more than the pounds 3,000 capital invested.
In particular, investors should beware of the charges levied on these tax-exempt bonds. Charges tend to be disproportionately high because of the contribution limits. Homeowners, for example, deducts 45 per cent of the first year's premium for someone making the maximum monthly contribution of pounds 25.Reuse content