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How do bonds work in Australia? Are Savings Bonds and Government Bonds the same thing? And what’s an Education Bond? Here in Australia, you can choose from a large variety of investment options. But with great choice, sometimes comes great confusion. Below, we’re breaking it down. So, for all things bonds explained – read on.

First thing’s first: how do traditional bonds work in Australia?


Have you ever written an IOU? Well, a traditional bond (a Corporate or Government Bond) is a bit like that – but with interest.

Let’s say, for example, a company wants to raise money to finance business activities. They can issue bonds (which is a type of debt security) to investors.


The company issuer promises to pay the investors a specific amount of interest on a regular basis – and repay the principle on a set date.


So, when you invest in a Corporate (or Government) Bond, you’re loaning your money to them for a set period. At the end of that period, you’ll get your money back – on top of the interest you’ll already have received over the investment term.


What are Savings Bonds in Australia?


If you’ve ever spent time in the US (or read articles written for investors there), you may have heard of the term ‘Savings Bonds’.

Savings Bonds are debt securities issued by the US Treasury Department to help pay for the US government’s expenses.


Essentially, Savings Bonds are what we in Australia would call Government Bonds. Which, as explained above, involve you lending money to the government for a set period of time at a pre-determined interest rate.


Are there Investment Bonds in Australia, too?


There are – but they work differently to the Government and Corporate Bonds we explained above.


An Investment Bond (also known as an Insurance Bond) is a long-term investment offered by insurance companies and friendly societies. In Investment Bonds, investors' money is pooled and invested according to the investment option they’ve chosen.


There are tax advantages for higher income earners if the investment is held for at least 10 years – and other certain conditions are met.


So, how are Education Bonds explained?


Not to be confused with a Corporate or Government Bond – or even an Investment Bond – an Education Bond is designed to tax-effectively save and invest for education expenses.


A Futurity Education Bond offers you flexibility to access your investment for any purpose – other than just for education.


Futurity Education Bonds offer the same features and benefits as an Investment Bond, as well as the added bonus of special education tax benefits and estate planning features.


The key benefits of Futurity Education Bonds include:

  • “Will-like” estate planning features: Enable tax-effective distribution to Bond Estate Nominees without the cost and complication (and potential legal challenges) of Wills and estates.
  • Savings and Lump Sum plans: Choose a method of saving that works for you – whether it’s a on-off single lump sum, or a series of payments over time.


  • Transfers: Transfer your bond at any time to someone else, with full preservation of your bond’s tax-advantaged status. You can also set a future-activated transfer for a particular date or happening of an event (such as your death), to transfer your bond to someone else.


  • Avenue for tax-free withdrawals: Withdraw funds from your bond’s capital component anytime, tax free.


  • Tax-paid investing: Education Bonds are tax-paid investments. This means that throughout the entire term of your investment, Futurity (rather than you) pays the tax on your bond’s ongoing investment earnings. Education Bonds don’t involve any CGT (capital gains tax) implications for the Bond Owner or the Education Beneficiaries.


  • The Education Tax Benefit: When a withdrawal is made for the purpose of funding education costs, the Education Tax Benefit amounts to an additional $30 for every $70 withdrawn from investment earnings. Withdrawals from earnings for education purposes are assessable in the hands of the Nominated Beneficiary.


  • Multiple beneficiaries: With a family class Education Bond, you can appoint up to 10 beneficiaries at any one time. The ‘Will-like’ tax-effective inheritances mean your bond earnings are given to your chosen nominees on a tax-free basis.


  • Add to capital or make capital-only withdrawals: You have complete access to your bond at any time. Any withdrawals from your bond’s capital component will be tax free.


  • Bond guardian feature: The Bond Guardian feature ensures wishes are carried out in the event of death and physical or mental incapacity.

Overall, our innovative Education Bond range gives parents and grandparents a purpose-built option to save and invest for their loved ones’ future.


Ready to apply your new-found bond knowledge? Speak with your financial adviser about the Futurity Education Bond range. Or get in touch with us to learn more.