Monthly archive for November, 2013
Although the drop in the headline rate of inflation by 0.5% is good news for savers, the interaction between inflation and interest rates when considering the outlook for savings rates still remains far from clear. Whether interest rates will rise and if so when seems to be the main focus for economists and yet the underlying impact on savers either way seems to be worryingly ignored. We take a look at the latest economic data in order to find out what all this might mean for savers.
Latest inflation figures
The headline rate of UK inflation, as measured by the Consumer Price Index (CPI), has fallen to 2.2% for the year to October 2013, according to the latest figures from the Office of National Statistics. The fall came as a surprise to many economists who were expecting a smaller reduction to around 2.5%. This sizeable fall of 0.5% on the previous month also means that CPI inflation is now at its lowest level since September 2012.
The government statistics body figures show transport, most notably motor fuels, and tuition fees were the main drivers of the fall in CPI with no notable upward contribution recorded over the month.
Reduction in context
Inflation in recent months has been lower than the Bank of England expected in its August Quarterly Inflation Report. However, although this is of course a welcome decrease, it should not be forgotten that it is still above the Bank of England’s official inflation target of 2%, and has been since December 2009.
The defined return for a defined level of risk has made the structured investment an attractive addition to the range of investment options available and as a standalone fixed term investment, has continued to rise in popularity in recent years. The kick out investment has been the stand out in terms of popularity and so we take a closer look at what lies beneath this type of investment to try and understand what is driving this interest, as well as review some of the recent market trends.
Kick Out investments hitting the mark
In recent years, the kick out plan has proved to be one of the most popular types of structured investment, seemingly hitting the mark with a wide range of investors. Also capable of adapting its structure in line with market conditions and investor demands, the inherent flexibility in how these investments can be put together can be seen as one of the main reasons for their growing popularity.
Kick out plans pay out a defined return providing a predefined event takes place. This event is normally based on the performance of an underlying investment, often the FTSE 100 Index. They offer both capital protected and capital at risk opportunities, and as such have become popular with both savers and investors. With this interest continuing to rise, we give you our Top 10 reasons to consider this type of plan.
1. Defined return v defined risk
The investor has the benefit of knowing at outset the conditions that need to be met in order to provide the stated returns, thus providing a defined return for a defined amount of risk, which can then more easily be compared with alternative investments as well as the returns available from cash savings.
2. FTSE linked
Plans linked to the FTSE 100 Index provide a return against what is widely recognised as the proxy benchmark for most investment managers. Since the historical volatility is familiar to many investors, they are in a better position to consider the pros and cons of the plan within the context of the underlying investment.
3. Potential to beat the market
Most kick out plans will mature early if the level of the FTSE at the end of the year is higher than its starting value (sometimes this is subject to averaging). This means that even if the FTSE has only gone up by a small amount, you would still receive the full growth rate thereby offering the opportunity to outperform the market.
With interest rates continuing at a record low, and with the Government’s Funding for Lending Scheme giving banks cheap money, there’s little incentive for providers to encourage savers by offering high fixed rates. However, there are alternatives to traditional fixed rate bonds, such as structured deposit plans, which could be an option for those who would normally have chosen to lock their cash away in a fixed rate bond. See below for our selection of some of the best fixed rate bonds and alternative savings plans on the market right now.
Short term fixed rate bonds
The shortest fixed rates currently offered include a 9 month fixed rate from principality paying 0.75% AER/gross requiring a minimum deposit of £5,000, and an 18 month bond paying 1.00% and requiring the same deposit. Virgin Money offers a one year fixed rate bond paying 1.75% AER/gross, which can be opened from just £1. Aldermore currently provides a selection of fixed rate deals, including a one year fixed rate bond offering 1.75% gross/AER and a two year fixed rate bond offering 2.00% AER/gross, both of which require a minimum deposit of £1,000.
Medium term fixed rate bonds
Virgin Money offers a rate of 2.20% AER/gross fixed for three years from deposits of £1 and up, while Vanquis offers a 3 year fixed rate paying 2.56% – however, this requires a deposit of at least £1,000. For those looking for a four year bond, Aldermore currently pays 2.70% on its 4 year fixed rate, with deposits starting from £1,000.
Cash that is not currently required as capital for the day-to-day running of your business will usually generate more interest in a business savings account than in a business current account. If you haven’t yet opened an account, or you’ve found that your current provider is no longer competitive, it’s worth shopping around for the best possible rates. We’ve put together a selection of some of this month’s best business savings accounts to help you choose the right option for you.*
Latest easy access account deals
If you’re likely to need access to your capital at short notice, an easy access business savings account, such as Cater Allen’s Asset 30 account, could be worth considering. This account offers a rate of 0.65% AER/gross and pays monthly interest, with a minimum opening balance of £5,000. Withdrawals can be made at any time, as long as you give 30 days’ notice. Alternatively, Bank of Cyprus UK offers a one year bond requiring a minimum deposit of £10,000 and paying 1.80% AER/gross. You can withdraw up to 30% of the value of your initial deposit during the fixed term provided that you give 35 days’ notice in writing. A maximum of two withdrawals are permitted.
Charities frequently face obstacles when it comes to getting a good interest rate on their savings. Fair Investment Company is committed to helping charities get the best interest rates on their savings. Here we have put together a selection of the best charity saving accounts currently available.*
Latest easy access account deals
If you don’t want to tie up charity funds for too long in case they’re needed urgently, an easy access account might be worth considering. For charities that are likely to require quick and easy access to their money at short notice, the Scottish Widows Charity Deposit Account offers instant access with no withdrawal penalties. The account requires a minimum deposit of £500, with an interest rate of up to 0.40% gross AER.
If you are prepared to opt a for a longer notice period, you may be able to gain potentially higher interest rate on your charity’s savings. The Cater Allen Asset 30 account offers a relatively short notice period of 30 days with a rate of 0.65% gross/AER. The minimum deposit for this account in £5,000, with monthly interest payments, and deposits are guaranteed by Santander.