Cash and bonds | Barclays Smart Investor (2024)

FAQs

What is the difference between cash and bonds? ›

Cash is a low-risk investment. A bank repays it on demand in most cases and even pays you interest. When you invest in a bond, you're effectively lending money to the provider. Your money is at risk because there's a chance that the issuer won't be able to make repayments.

The takeaway. While bonds are safer than stocks and may provide a fixed return on your investments, many experts agree that they should be one component of a more diverse investing strategy.

A cash bond is when you post cash in order to fulfill your obligations. The advantage to the principal of a cash bond is a lower fee. Because reserves are essentially covered by the cash on hand, there is no need for funds to be readily available. The disadvantage is having to have the full bond amount in cash on hand.

You'll need to log in, then from 'My hub' click on 'Portfolio' to get started. From here, click on 'Manage' and then choose the 'Withdraw' option, and follow the onscreen instructions. Once your deal settles you can withdraw any cash you need from your Smart Investor account.

Bond returns have consistently exceeded the returns of cash and cash equivalents. From 2008-2022, bonds outperformed cash by a 2.1% annual average. While 2022 was the worst-performing year in the modern history of the bond market, the year's results failed to offset the outperformance of the preceding 15 years.

Cash – including high-yield savings accounts, short CDs – money market funds, and bond funds, are all perceived as relatively “safe” investments but differ in terms of their risk level and return potential. Cash is the least risky of the three but offers the lowest potential return.

Historically, bonds have provided lower long-term returns than stocks. Bond prices fall when interest rates go up. Long-term bonds, especially, suffer from price fluctuations as interest rates rise and fall.

Key Takeaways. Bonds are often touted as less risky than stocks—and for the most part, they are—but that does not mean you cannot lose money owning bonds. Bond prices decline when interest rates rise, when the issuer experiences a negative credit event, or as market liquidity dries up.

Over the past 40 years, bonds have averaged a 6.4% annual return—about 1.5 times the 4.1% return of cash. Bonds have also been consistent outperformers: In the 433 months from January 1986 to April 2022, bonds had a better 5-year return in all but 10 periods—a 98% success rate (Exhibit 4).

How to make money from bonds? ›

There are two ways to make money by investing in bonds. The first is to hold those bonds until their maturity date and collect interest payments on them. Bond interest is usually paid twice a year. The second way to profit from bonds is to sell them at a price that's higher than you initially paid.

Savings bonds might suit you, if you: Possess a pot of savings that you can afford to lock away for a set period. Have a definite savings goal and want to know you'll be able to reach it. Want to receive a potentially higher return than a regular savings account.

Barclays Smart Investor was named the Best Stocks & Shares ISA Provider at the 2022 Online Money Awards. It also won the Best SIPP at the 2022 Shares Awards.

The customer fee applies to all investments held across your individual Barclays Smart Investor accounts. This annual fee is 0.25% up to £200,000 and 0.05% on investments over £200,000. It is charged only on investments such as funds and shares there is no charge to hold cash.

Our fees. No charge to open the account and a simple annual customer account fee of 0.25% on investments up to £200,000 and 0.05% on investments above £200,000.

Short-term government bonds are considered by some to be cash equivalents because they are very liquid, actively traded securities. They are issued by a government to fund government projects. Investors should be sure to consider political risks, interest rate risks, and inflation when investing in government bonds.

Investments in liquid securities, such as stocks, bonds, and derivatives, are not included in cash and equivalents. Even though such assets may be easily turned into cash (typically with a three-day settlement period), they are still excluded. The assets are listed as investments on the balance sheet.

Over the past 40 years, bonds have averaged a 6.4% annual return—about 1.5 times the 4.1% return of cash. Bonds have also been consistent outperformers: In the 433 months from January 1986 to April 2022, bonds had a better 5-year return in all but 10 periods—a 98% success rate (Exhibit 4).

The chart shows that investment grade corporate bonds (short dated and all-maturity) and all maturity government bonds tend to perform well in cutting cycles with excess returns generated over cash (on average) over 1yr. High yield bonds show mixed results, down versus cash on average over 1yr.