Investment Bonds

Investment bonds are investments that you buy from insurance companies, with a lump sum. You will get some life assurance with these products, but it is usually a minor part of the product. They should not be mistaken for fixed-term deposits (often called 'bonds'), from banks and building societies. Investment bonds are sometimes known as insurance bonds. With-profits bonds are one type of investment bond.

Unit-linked funds

These are divided into units. You buy a certain number of units in the fund you have chosen. There is usually a choice of funds available, offering different types of investment and different levels of risk. Most investment bonds have one or more 'managed funds'. These are spread across different types of investment, instead of concentrating on just one type. Other funds might invest in specific areas such as UK equity or property. Unit-linked funds are likely to give more variable returns than with-profit funds, as the value of your units will rise and fall in line with the value of the underlying investments.

With-profit funds

These are designed to smooth those ups and downs. The fund pays bonuses to reflect the returns of the underlying investments (which typically include equities, fixed interest, property and cash). In good years, when investments do well, the bonuses will reflect much of that performance. But some of the money will be kept back so bonuses can be paid in years when investments don't do so well. This smoothing prevents large swings in the levels of bonuses from year to year. However, the level of future bonuses is not normally guaranteed: they can be lower than previous ones and in some years they may not be paid at all.