How to find the best investment bonds in Australia

If you're looking for a tax-effective way to invest in Australia, investment bonds could be a great option.

While they may not be as widely discussed as popular investment options, like shares or property, they can deliver impressive results, blending tax efficiency, flexibility and long-term wealth-building potential all in one.

Here, we explore what to consider when browsing some of the best investment bonds in Australia, how they work and their key benefits.

What are investment bonds? 

Investment bonds, also known as insurance bonds, are a type of investment product offered by life insurance companies and financial institutions.

They combine the features of investments and life insurance, allowing investors to contribute money to a professionally managed portfolio.

These portfolios may include a mix of assets such as equities, property, fixed interest and cash.

How do investment bonds work in Australia? 

Investment bonds work similarly to managed funds, with one significant difference: the tax treatment.

When you invest in an investment bond in Australia, the earnings are taxed at a maximum rate of 30% within the bond itself. This makes them a tax-effective alternative for high-income earners.

Here's how they operate:

• Initial investment and additional contributions: You can start with a lump sum investment and, in most cases, add up to 125% of the previous year's contribution annually. 
• Tax efficiency: The bond provider pays tax at 30%, and if you hold the bond for at least ten years, withdrawals after this period are tax-free. 
• Flexibility: You can choose from a variety of investment options within the bond, such as conservative, balanced or growth portfolios. 
• Withdrawal options: While investment bonds are designed for long-term investment, you can withdraw funds early, but tax implications may apply. 

Four core benefits of investment bonds 

Investment bonds in Australia offer several advantages for investors, making them a top choice for those seeking long-term financial growth. They include:

1. Tax benefits 

One of the key attractions of investment bonds is their tax structure. Since the bond's earnings are taxed at 30%, they can be a tax-effective option for those in higher income brackets (who would otherwise be taxed at up to 47%). After ten years, any withdrawals are tax-free, provided the bond has not been cashed out early.

2. Wealth planning and estate benefits 

Unlike direct shares or managed funds, investment bonds allow for smooth estate planning. Since they include a life insurance component, they can be set up with a nominated beneficiary. This means that, upon the investor's passing, the proceeds can be paid directly to beneficiaries without going through probate.

3. No ongoing tax reporting 

Since the tax is handled within the bond, investors do not need to report earnings in their annual tax returns, reducing the complexity of tax filings.

4. Disciplined investing 

Investment bonds encourage long-term investing due to their tax incentives, making them ideal for education savings, retirement planning or wealth accumulation.

Some of the best investment bonds Australia offers 

When looking for the best investment bonds Australia has, consider factors such as performance, fees, investment options and the reputation of the provider. Some of the top investment bond providers in Australia include:

Australian Unity - Offers a range of diversified portfolios for long-term investors.

Centuria Life - Provides a flexible and tax-effective investment bond solution.

Generation Life - Known for its strong investment options and wealth management solutions.

Foresters Financial - Offers tax-efficient investment bonds suitable for various financial goals.

Before choosing an investment bond, it's important to assess your financial objectives and compare the fees, investment choices and additional benefits each provider offers to ensure you select an asset that aligns with your investment objectives and risk tolerance.

Managed funds as an alternative

While investment bonds provide tax advantages and estate planning benefits, managed funds can also be a good alternative for those seeking diversified investment opportunities. Unlike investment bonds, managed funds do not have a 10-year tax incentive but may offer more flexible investment options.

Of course, if you're unsure whether investment bonds or managed funds are the right choice, speaking to a financial advisor may help determine the best strategy for your needs.

Start learning more about investing with Money  

Investment bonds in Australia can be a fantastic long-term investment option and, when utilised effectively, can play a crucial role in your wealth-building strategy. At Money, we are committed to ensuring everyday Australians make smarter decisions with their finances, from their choice of investment to home loan lender.

If you're interested in learning more about how investment bonds work in Australia or other investment opportunities, check out the Money Learning Hub. It's jam-packed with expert insights and financial tips to help you make informed decisions.

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