As we move toward the end of August and thoughts of the summer months start to move towards Autumn, we take a look at what has been a very busy time of year for investors. British summer officially started on 21st June and with a competitive range of income and growth investments plans on offer, we bring you our five most popular plans so far this summer.
Income remains top priority
As you might expect, with savings rates continuing at uninspiring levels and many savers inevitably looking to take on more risk in the hunt for higher returns, income features heavily in the summers most popular plans. However, there are also some compelling growth stories with a defensive strategy around the FTSE as well as the seemingly ever-popular Kick Out plan, currently offering the potential for double digit returns.
Both savers and investors have also benefited from the greater freedom for ISA transfers, because since 1st July you can move from a Cash ISA to a Stocks & Shares ISA and vice versa. These plans have also been particularly popular with ISA investors using the new £15,000 ISA limit.
1. 5.64% fixed income each year, monthly payments
Nothing seems to be able to keep the Investec Enhanced Income Plan from taking top spot at any time of year and the summer is no exception. Our ISA season best seller continues to a top performer with the current issue paying a fixed annual income of 5.64%. The plan pays monthly (paid as 0.47% each month) regardless of what happens to the FTSE. Capital is at risk if the FTSE falls by more than 50% during the investment term. If it does, and the Index also finishes below its starting level then your original capital will be reduced by 1% for each 1% fall, so you could lose some or all of your original investment.
Fair Investment view: “Knowing exactly how much you will be paid, when and for how long are clearly features which have struck a chord with both savers and investors and the monthly payment frequency is a popular feature. Without the need to pay tax if held within an ISA, this plan also offers an attractive opportunity to use your New ISA allowance to receive a fixed and regular tax free income.”
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Fixed term investment plans that have the ability to mature early or ‘kick out’ each year seem to be popular whatever the investment climate but particularly so when the market is at historically high levels. The Enhanced Kick Out Plan from Investec currently offers the highest rate of any kick out investment based on the FTSE 100 Index which helps to explain why this plan is proving so popular both with our existing customers as well as new investors. We take a closer look at the plan and review the risk versus reward on offer to see how this might make for an attractive opportunity in the current investment climate.
Investors looking to gain a broad exposure to the UK stock market often look to investments linked to the performance of the FTSE 100 Index. But with the Index continuing its run at historically high levels, many investors find it difficult to decide whether now is the right time to invest or not.
Investors considering their options are often split down the middle – on the one side are those who feel confident that the Index can break through the 7,000 point barrier and keep going, and then there are those on the other side who remain uncertain that the market will continue to rise at a pace.
The FTSE 100 Enhanced Kick Out Plan from Investec is proving particularly popular with both existing customers and new investors. Many of our existing customers have investments that have matured recently or are likely to mature early in the coming weeks providing them with the opportunity to consider new investment opportunities and many have considered this plan. For new investors, the headline rate of 10.50% is also proving a compelling opportunity in the current investment climate and has been particularly popular with those using their new £15,000 ISA limit – so how does the investment work?
It’s not only the performance of our athletes at the Commonwealth Games that has been sizzling this summer, as there are clear signs that the savings market is beginning to hot up by offering more competitive rates and bringing some much needed innovation. In the first of a two part feature, we let you know which savings accounts are also performing well this summer by giving you our selection of summer sizzlers from the best the market has to offer.
Inflation and interest rates keeping us on our toes
But it’s not just the athletes that are being talked about. Inflation had been expected to come in around the 1.60% but instead the Consumer Price Index grew by 1.90% in the year to June, the largest increase for almost 2 years. It also means that basic rate taxpayers need to earn at least 2.38% just to break even, higher rate taxpayers over 3.16%.
However, although the increase hands the Bank of England even more ammunition for a rise in interest rates, most economists are in agreement that rates will start to rise next year – or perhaps at the end of this year but that a sharp and sudden rise is extremely unlikely with a slow and limited increase expected. However, things can change and change quickly, so the bottom line is that whatever happens, you need to be aware of the implications of inflation and the impact interest rate rises may have before deciding which route to take.
Savings accounts – what’s hot?
Regardless of how long you can tie up your money, from instant access to long term savings alternatives, there should be something here for everyone including guaranteed fixed rates, rates that can increase with interest rate rises, as well as savings alternatives which offer the potential to beat rising inflation.
Research from the financial services regulator, the Financial Conduct Authority, recently stated that loyal bank customers are not being rewarded and are experiencing lower rates on their savings compared to those who shop around. Their research showed that while the average interest rate on an instant access account opened in the last two years was 0.8%, accounts that were opened more than five years ago offered just 0.3%, the effect of introductory bonuses ending being one of the main culprits.
Savings Maximiser is a cash management service that compares the best buys from across the market and by regularly reviewing your accounts and making switches if a better rate is available, aims to secure a consistently competitive rate of interest. Aimed at those who want to retain instant access to their money at all times and have at least £25,000 to keep on deposit, the service offers full banking facilities and is simple, secure and saves you time. With the ever increasing number of savings rates on offer, the pace of changes to market leading rates and potential interest rate rises on the horizon, this could be a perfect time to consider this service.
Click here to find out more about Savings Maximiser »
Short term savings – 1 Year Fixed Rate Bond, 1.95% AER
With predictions pointing to a base rate hike above 1% unlikely until 2016, one year fixed rates are proving popular and for those who are able to tie up their money and are also looking for a fixed and regular rate of interest, Investec Private Bank is offering 1.95% AER on their 1 Year Fixed Term Deposit. The minimum deposit is £25,000 and interest can be paid annually or monthly, the account can be set up as a single or joint account and access to account information is online or via telephone. As with most fixed term accounts, no early withdrawals are permitted. You can apply online, request further information to be sent to you via email of have someone from the bank call you back directly.
Click here to find out more about the Investec 1 Year Fixed Term Deposit »
Medium term savings – 3 Year Base Rate Plus, 2.60% AER minimum
Investec has also shown some welcome innovation in the market with their 3 Year Base Rate Plus. The account pays 1% AER/variable above the Bank of England Base Rate but with a minimum rate of 2.60% AER, so whatever happens you know you will never earn less than this. Interest is not compounded and will be paid into your nominated account annually. No early closure or withdrawals are permitted.
The Base Rate Plus account offers innovation for savers by combining a competitive minimum return that is fixed, along with the potential to benefit from any increase to the Bank of England Base Rate for those who think it could perhaps rise quicker than currently expected.
Click here to find out more about the Investec 3 Year Base Rate Plus Account »
Medium to long term savings alternative – potential 5.25% each year, from year 3
For those prepared to tie in for the longer term but who would like the opportunity for their plan to mature early, the Kick Out Deposit Plan from Investec offers the potential to mature from year 3 onwards. The plan offers a potential 5.25% per year (not compounded) and will mature early or ‘kick out’ provided the value of the FTSE 100 at the end of each year from year 3 onwards, is higher than its value at the start of the plan (subject to averaging) – even by just one point. That’s a potential 15.75% after 3 years. If the Index is lower on all of these dates you will only receive a return of your initial deposit.
Our leading 3 year fixed rate bond is paying 2.65%, with lower rates available for fixing within a Cash ISA. So if you’re looking for new ways to use your savings and are prepared to sacrifice a guaranteed return, this plan could provide almost double the current fixed rates on offer.
Click here for more information about the Investec Kick Out Deposit Plan »
Long term savings – 5 year fixed rate bond, 3.11% AER
The additional premium for committing your savings for the longer term has narrowed recently and yet the demand for this length of fixed rate is still high. Vanquis Bank’s 5 Year Fixed Rate Bond is currently offering 3.11% AER with a low minimum deposit of £1,000 and you can apply online. There are annual or monthly interest options but no withdrawals are permitted.
Click here for more information about the Vanquis Bank 5 Year Fixed Rate Bond »
Long term savings alternative – maximum 40% growth return
For those looking for the potential for higher growth and are prepared to tie their money up for the longer term, the Defensive Supertracker Deposit Plan from Morgan Stanley offers a number of features that savers might find attractive. Firstly, your return is linked to any rise in the FTSE 100 Index over the term, which is then doubled (subject to a maximum return of 40% of your initial investment) and secondly, the rise is based on any increase above 95% of its starting level. So even if the FTSE ends the same you would receive 10% (2 x 5%), and if it rose by 10% you would receive a 30% return (2 x 15%). If the Index finishes below 95%, no growth return would be paid and you will only receive your initial capital back.
Finally, your initial deposit is protected whatever happens to the FTSE and is also eligible for FSCS protection – Lloyds Bank plc is the deposit taker for this plan. Our leading five year fixed is offering 3.11% AER, so if the FTSE rises by over 15% at the end of the term, you could more than double the leading fixed returns on offer, but if it only goes up a little or falls, you would have been better off with a fixed rate.
Click here for more information about the Morgan Stanley Defensive Supertracker Deposit Plan »
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AER – Stands for the Annual Equivalent Rate and illustrates what the interest rate would be if interest was paid and compounded once each year.
No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular plan. If you are at all unsure of the suitability of a particular product, both in respect of its objectives and its risk profile, you should seek professional advice.
Some of these plans are structured deposit plans that are capital protected. There is a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial investment and any returns stated. In this event you may be entitled to compensation from the Financial Services Compensation Scheme (FSCS), depending on your individual circumstances. In addition, you may not get back the full amount of your initial investment if the plan is not held for the full term. The past performance of the FTSE 100 Index is not a guide to its future performance.
This time last year we introduced our Top 5 Most Popular Investment Plans into our fortnightly newsletter. This has been so well received that we have now launched a new feature which looks back over the previous month and gives you what we consider to be our plans of the month across both savings and investments. This will appear in our first newsletter of each month.
Savers and investors
The plans featured will be spread across five different categories, two capital protected savings plans and three investment plans. Since new and existing visitors to Fair Investment include both savers and investors it is only right that we include both in our selections.
Historically, most savers have considered Cash ISAs and investors have considered Stocks & Shares ISAs. The greater flexibility provided by the New ISA rules means that Cash ISAs can now be transferred to Stocks & Shares ISAs which opens up another option for savers facing the impact of historically low savings rates. It also means that there is a greater need to be clear about whether your capital is protected or at risk.
Any income or growth received from money held with an ISA is not then subject to tax, thereby resulting in the potential for attractive tax free returns. This is why wherever possible, each plan listed will be available both in and out of an ISA as well as accepting ISA transfers. Please make sure you check the individual plan details first though to check.
The five categories are as follows:
- Growth investment Plan of the Month
- Income investment Plan of the Month
- Kick Out investment Plan of the Month
- Savings alternative Plan of the Month
- Fixed rate bond Plan of the Month
From a fixed rate of return and capital protection, to putting your capital at risk for the potential of double digit growth returns, these five categories cover a depth of options for both savers and investors, seeking either income or growth.