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National Savings Income Bonds

National Savings Income Bonds are investments which pay monthly interest to the individual who invests in them. Income Bonds become a source of extra income for many British citizens. The minimum investment must be ?500 ($833.75 U.S.); larger purchases or additions must also be in multiples of ?500. The maximum amount of investment is up to ?1,000,000 ($1.6675 million U.S.) for individual or joint accounts. With Income Bonds there is no risk of capital loss, either.

Income Bonds are offered by National Savings and Investments (NS&I) which was founded in 1861 by the British government. However, at that time it had been known as the Post Office Savings Bank which was the first postal savings system in the world. The government charged its post offices with the responsibility of operating a postal savings system. This system provided a safe and convenient way for poorer citizens to save money. This benefited both the government and its citizens: The government had an easy entry to debt funding and the citizens had an opportunity save for the financial setbacks in life. The bank transferred to Great Britain's Treasury in 1969, with its name being changed to National Savings and, in 2002, changed to National Savings and Investments.

Since NS&I is backed by HM Treasury (Her Majesty's Treasury), the investor in Income Bonds faces little risk of losing his money. Great Britain has the means to guarantee its Government Bonds by the same avenues as the United States--raising funds either by taxation or printing money. National Savings and Investments makes up approximately ?83 billion ($138.4025 billion U.S.) of the UK savings market, which is 16 percent of the UK's national debt. The funds from NS&I are a fairly inexpensive source of government borrowing and this allows the bank to set interest rates that both attract savers and provide low-cost financing for the British government.

The NS&I will pay the income from the bonds directly into the investor's bank or wherever directed to deposit the income. The capital will earn daily interest which is calculated as soon as the bond is purchased. At times the interest rates may change and in this case investors will be notified. Interest is taxable; however, the tax is not deducted by NS&I. Therefore, tax paying investors will declare the interest to the HM Revenue & Customs, much like the U.S. Internal Revenue Service. The investor also can readily cash his bonds in without notification or penalty. However, if the National Savings Income Bonds are held jointly, both of the investors will need to sign.

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