Investment bonds provide a better after-tax outcome when compared to term deposits or a managed fund with a similar asset allocation, according to an investment comparison calculation from Foresters Financial.

The comparison assumed a $250,000 initial contribution, with subsequent yearly contributions of $25,000 over a 10-year period. The data showed that on an after-tax basis an investment bond is a better option for an investor on the highest marginal tax rate.

Foresters Financial CEO, Emma Sakellaris, said that although investment bonds and managed funds provide a similar return, the true benefit of an investment bond is its advantageous tax treatment.


“Investment bonds have a maximum tax rate of 30 per cent on earnings in the bond paid at a fund level, so investors are able to invest and build wealth without increasing or adding to personal income tax liabilities.


“Additionally, if held for 10 years investors can access the funds as a tax-free lump sum or via tax-free regular withdrawals without any capital gains tax or personal income tax implications.

“Investment bonds are particularly useful investment option for high-income earners as the earnings from investment bonds are not declarable on tax returns unless withdrawn prior to the 10-year mark.

“Of course, it is possible to access an investment bond before the 10-year mark, although some of the tax benefit will be lost.”

Foresters’ research showed that a $250,000 initial investment, with a subsequent annual contribution of $25,000 over 10 years would have the following outcome for a taxpayer on the highest marginal tax rate:


Investment bond Term deposit Managed fund
Total investment $475,000 $475,000 $475,000
Total income $180,191 $158,248 $207,410
Net tax payable $ – $71,212 $49,293
Net proceeds $655,191 $562,036 $633,116



The following assumptions apply:

Assumptions Investment bond Term deposit Managed fund
Initial contribution: $250,000 $250,000 $250,000
Subsequent contribution each year: $25,000 $25,000 $25,000
Investment term: 10 years 10 years 10 years
Gross return assumptions: 6% 4% 6%
Marginal tax rate: 45% 45% 45%
Franking credits: n/a n/a 100%


“Investment bonds suit a variety of personal circumstances, whether it is as an alternative or supplement to superannuation, estate planning, investing on behalf of children, or a means by which to save for future significant purchases.

“For Australians who have reached their superannuation contribution limits and still plan to accumulate wealth, this is a great alternative strategy to consider as it comes with the added tax benefits as shown in our research,” said Sakellaris.

The information provided in this scenario does not constitute financial product advice. The information is of a general nature and does not consider your individual objectives, financial situation or needs. Please consider the information contained in the Product Disclosure Statement and Target Market Determination before deciding to acquire the products. Please obtain independent professional advice before making any decisions. Financial services are provided by Foresters Financial Limited (ABN 27 087 648 842, AFS Licence No. 241421). Past performance information is not a reliable indicator of future performance.


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