MAILMONEY; Corporate bonds may sound boring but they'll get you plenty of interest.

Byline: GRAEME LENNOX

SOME things may be good for you but they just don't sound sexy. Take corporate bonds.

They might make the odd boring accountant lick his lips.

They might even quicken the heartbeat of Gordon Gekko on Wall Street but they're not the first thing your mind turns to if you want to make a lovely big pile of dosh.

But it would be a mistake to ignore corporate bonds in these turbulent, war-scarred times for investors.

As our table shows, their returns really can be pretty good. If you had invested pounds 1000 in the Norwich Corporate Bond 1 three years ago, it would now be worth pounds 1202, an increase of more than 20 per cent at a time when share-based Isas are being slaughtered.

Even if you had chosen an average performer in our table, your money would be up around 12 per cent.

These bonds are effectively IOUs from companies, issued as a means of raising cash.

In return for your money, the issuing company promises to repay you a set rate of interest each year before returning the capital in a lump sum at a future date.

As the popularity of bonds increases, so does their capital value. But you can also use them to provide a very steady stream of income.

Legal & General's High Income ISA invests in corporate bonds in big companies across Europe and the US, with a tax-free income of 7.88 per cent in year one. Just compare that rate to high street rates as low as 0.1 per cent.

Anna Lees-Jones, manager of investment house M&G's corporate bond fund, reckons they are anything but a flash in the pan.

She says: "We have certainly not gone the whole way on the bond market yet. Pension funds have invested far too heavily in equities and are in deficit. They will be moving to bonds and this strong demand will be a three- to-five-year phenomenon."

You can buy bonds through a fund and invest them in a tax-sheltered ISA. This way, you are not relying on just one company, while keeping profits away from the taxman.

John Spiers, of independent financial adviser Bestinvest, thinks all investors should consider bonds. He says: "The most important factor is the balance between equities and bonds.

"If you are concerned about market prospects, get yourself a decent weighting in bonds."

The advantage of investing in individual bonds is that you know when they will expire and have time to prepare another investment vehicle or plan how to spend the money. When you tie yourself into a fund, there is no fixed end date and its performance depends on the skill of the fund manager.

Peter Hargreaves, of independent financial adviser Hargeaves Lansdown, suggests Standard Life's AAA Fund.

He says: "With pounds 130 million invested since launch in April 1999, this is proof that a huge number of people believe only the best quality bonds are good enough. Standard Life, Europe's biggest mutual, is a top three player."

Sainsbury's Bank has an Income ISA which invests in corporate bonds with no initial charge and an annual fee of just one per cent.

Leeds & Holbeck's Five Year Access Bond promises fixed rising returns to deliver 22 per cent over five years. On a minimum investment of pounds 1000, savers have penalty- free access to their cash any time after year one.

The ISA tax-free shelter limits you to a pounds 7000 investment each year but many investment companies will let you contribute monthly.

You can invest more than pounds 7000 but will have to declare extra earnings to the taxman.

But unlike gilts, issued by the Government, corporate bonds are not risk- free. Recent high-profile collapses such as Enron show your original capital is not guaranteed.

Bad news can affect any company's bond price, which means bad news for those who have chosen to invest in them.

Bond prices are also linked to long-term interest rates, so they go down when rates rise and up when rates fall.

And as with any investment, past performance is no guarantee of future performance.

When safe is better than sexy

TOP 10 PERFORMING CORPORATE BOND FUNDS

1. Norwich Corporate Bond 1 pounds 1202.81

2. L&G Fixed Interest Inc pounds 1197.46

3. Fidelity Moneybuilder Income pounds 1194.39

4. Cazenove UK Corp Bd A Inc pounds 1187.88

5. Virgin Income Trust pounds 1185.28

6. Standard AAA Inc Ret Inc pounds 1182.25

7. JPMF UK Bond A Inc pounds 1171.63

8. Gartmore Extra Income pounds 1165.48

9. Abbey National Balanced Income pounds 1164.67

10 Homeowners High Income pounds 1164.14 Sector Average pounds 1120.57

SOURCE: INVESTMENT, LIFE & PENSIONS MONEYFACTS

Loan giants take a rise out of clients

CREDIT card, bank and loan firms are advertising misleading interest rates to customers, according to a survey.

Pollsters NOP got 200 people to apply for credit to see how many got the low rates advertised.

All the groups offered risk-based rates where rates change according to an individual's credit rating.

Only 10 per cent were offered the lowest rate advertised while 71 per cent said lenders didn't make it clear the rate offered depended on credit scoring.

None of the 50 who applied to Lombard Direct - part of the Royal Bank of Scotland - were given its advertised rate of 6.9 per cent. They were offered an average rate of 8.5 per cent while the highest rate was 23.9 per cent.

Just four per cent of people who applied to Abbey National for a loan were offered its low rate of 6.6 per cent. A similar number were offered Barclaycard's low 11.9 per cent rate while some offers were as high as 24.9 per cent.

The survey was carried out for internet bank Egg. Chief executive Mark Nancarrow said: "These providers appear to be knowingly misleading consumers."

Tough on the home front

THE housing market could suffer as homeowners wait to see what impact the war on Iraq will have on prices.

Around 88 per cent of people say they do not plan to buy or sell property in the near future due to the uncertain market, according to research by The Mortgage Lender.

CASHPOINTS

FIVE-YEAR Access Bond from Leeds & Holbeck promises fixed rising returns to deliver a compound return of 22 per cent over five years. On a minimum investment of pounds 1000 savers have penalty- free access to their cash any time after year one. Tel: [phone].

THE MarketPlace at Bradford & Bingley offers a flexible 10-year fixed rate mortgage at 4.59 per cent (APR 5.2 per cent) until June 30, 2013. Borrowers can repay 25 per cent a year of an outstanding loan penalty- free. Tel: [phone].

SAGA Investment Direct makes an initial charge of just 0.25 per cent on two equity ISA portfolios until April 30. Investors have choice of Income or Growth Portfolios, while a third option - the Invesco Perpetual Corporate Bond fund - makes no initial charge at all. Tel: [phone]