Should YOU join the BONTO RUSH?

As savings returns crash to record lows, investors are piling billions into risky funds that lend your cash to big firms. So ...

SAVERS are ploughing more than £36 million a day into risky bond funds in a bid to beat the income crisis.

Money Mail last week revealed that returns on bank savings accounts had plunged to as little as 15p for every £1,000 invested for the whole of last year, with cash Isas paying just 18p for the year on that sum.

These record-low payouts are driving investors to take bigger risks to boost their incomes. Latest figures show savers poured £11 billion into bond funds in the first 10 months of 2017 — the most ever in a calendar year.

That works out at more than £36 million a day. The amount of money flowing into these investment funds has risen each month since December 2016.

For the past five months, they have been the best- selling type of funds among investors. In October alone, savers put in more than £2 billion — more than twice as much than invested in the next most popular option, so-called mixed asset funds which invest in a mixture of bonds, shares, property and metals such as gold.

But experts warn that savers are taking a big risk if they put large chunks of money in bonds and could end up losing some of their investments.

Bond funds invest in what are essentially IOU notes issued by companies and governments. The organisation offering the bond pays regular interest to the fund, which passes this to savers. In the meantime, the value of your capital goes up and down with the value of the bonds.

The alternative is stock market funds but they are often seen as more risky because share prices typically swing more wildly.

And with share funds your payout is linked to how much profit companies make and the dividends they can afford, whereas bond payouts are seen as more stable.

But now experts are saying that rising interest rates over the next two years could put a dent in bond funds.

This is because when rates rise, the price of bonds tends to fall. The Bank of England says it could increase interest rates twice more by 2020 to 1 pc from 0.5 pc today.

As a result investors — many of whom are pensioners looking for income — could find their life savings are worth less.

Ben Yearsley, of adviser Shore Financial Planning, says if rates went up by 1 pc, then the average corporate bond fund could fall by about 5 pc within two years.

He adds: ‘Some people are just fed up with poor savings rates so they’re are looking to put their money anywhere else, but it’s not right to think that bonds are automatically a safe choice. If rates go up you could end up losing money.’

Laith Khalaf, of stockbroker Hargreaves Lansdown, says: ‘Everything is pointing towards bond funds being a bad idea, so it’s worrying to see so much money piling in. If interest rates rise, as expected, it will be very difficult to make any money from them.’

Even the best easy-access cash savings accounts paid just £13.20 on £ 1,000 last year after a succession of cuts to rates.

Giant banks still pay as little as 0.05 pc on their main easy access accounts — despite the Bank of England base rate increasing from 0.25 pc to 0.5 pc in November.

Experts say some savers are moving cash into bonds and the stock market. Others with money in shares are flocking to bonds in the hope of safer returns amid speculation that the stock market could dip. If you opt for traditional investments to boost your returns, you have three main choices: bond funds, equity income funds and individual retail bonds.

So- called equity income funds invest in the shares of firms with a track record of paying bumper dividends to shareholders.

They will also aim to grow your money over time — which isn’t something bonds are known for. Mr Yearsley tips JO Hambro UK Equity Income, which has grown £10,000 into £18,040 in five years by investing in firms such as Lloyds Banking Group and Vodafone. Currently, it pays £4.29 income for every £100 invested. Mr Khalaf recommends Artemis Income, which turned £10,000 into £16,827 over the same period. It pays £3.73 for every £100 you invest. Its biggest pick is oil giant BP while it also has money in insurer Aviva and tobacco firm Imperial Brands.

The experts say it could make sense to split your money and spread your risk.

If you go for bonds, they say you should look for so-called strategic bond funds. These invest in a variety of companies, governments and high-income bonds to get the best possible income for savers and manage the risks.

Jason Hollands, of broker Bestinvest likes TwentyFour Dynamic Bond fund, which is currently paying £4.53 income on every £ 100 by investing in Australian and U. S. government bonds as well as those offered by Nationwide and Coventry Building Societies. Adrian Lowcock, of investment firm Architas, tips Kames Investment Grade Bond, which pays £2.71 for every £100. It invests in Aviva, Bank of Scotland and HSBC among others. You could also try retail bonds — offered by a single company, such as Tesco or Lloyds Bank. They are not like cash savings bonds offered by banks and you face losing money if the firm goes bust or struggles to repay debts.

But the returns are attractive. For example, Tesco has bonds paying as much as 6 pc while Vodafone has one offering 5.9 pc.

You can’t invest in these by going direct to the company. You must use a stockbroker such as Killik & Co (020 7337 0777), Investec (020 7597 4307) or Barclays Stockbrokers (0800 279 3667).