For those who are looking for fixed rates or alternative savings ideas this summer, there are signs that the market is beginning to hot up by offering more competitive rates and bringing some much needed innovation. In the second of our two part summer feature, we let you know which savings accounts are performing well this summer by giving you our selection of summer sizzlers from the best the market has to offer.
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 from instant access and guaranteed fixed rates, to Cash ISAs and savings alternatives which offer the potential to beat what are still historically low savings rates.
Instant access – up to 1.40% AER variable
If you are looking for an instant access ISA, Nationwide’s Instant ISA Saver is currently paying 1.40% AER variable interest and can be opened by UK residents aged 16 and over from just £1. This simple, flexible account could be an option to consider if you are new to ISAs or are looking for a low-deposit ISA deal that is suitable for a young person over 16 who wants to start saving. For those who are seeking a non-ISA instant access savings deal and would prefer to receive monthly interest, the Online Instant Access Savings Account from State Bank of India offers an interest rate of 1.25% AER variable which is paid on a monthly basis. A minimum deposit of £500 is required to open this savings account.
Click here to find out more about instant access ISAs »
Click here to find out more about instant access savings accounts »
Instant access cash management – up to 1.63% AER variable
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 change to market leading rates and potential interest rate rises on the horizon, this could be a perfect time to consider Savings Maximiser. Current rates available are up to 1.63% AER variable and there is a fixed monthly fee for this service.
Fair Investment view: “The upside to this type of account is that you have instant access to all of your money, whenever you want it, although there are still a few deals where the headline rate includes a bonus after 12 months so you may still need to plan ahead. However, we are also well into our seventh year of record low interest rates and the returns on offer from instant access are still low. With some signs that this may start to pick up, a cash management service which reviews the best rates for you could be a timely opportunity.”
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Short term savings – 2.38% AER fixed for 2 years
For those who are able to tie up their money for two years and are also looking for a fixed rate of interest, the 2.38% AER on offer from Access Bank UK’s 2 Year Fixed Rate Bond is market leading. The minimum deposit is £5,000 and interest is paid at maturity. 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 quickly and securely.
Fair Investment view: “A fixed rate bond such as this offers security for your capital, and you know exactly how much you will paid and when, but with savings rates still at some of their lowest levels of all time, even at 2.38% you could find that this type of savings account is offering significantly lower returns than the rates on offer a few years ago.”
Click here to find out more about the Access Bank UK 2 Year Fixed Rate Bond »
The economic environment continues to create challenges for savers, brought about in the main by the impact of record low interest rates on our savings and our future. Whilst the current market for traditional fixed rates still offers some of the lowest rates ever seen, it is perhaps easy to understand why the potential for higher returns available from the range of structured deposit plans is becoming a more compelling option for savers to consider. With this in mind, we take a detailed look at one of our most popular, the FTSE 100 6 Year Defensive Deposit Plan from Investec Bank, to find out why this plan could be an alternative for your deposit or Cash ISA savings.
Traditional savings products underperforming
The current economic environment is as challenging as it’s ever been and those that are feeling it most are cash savers looking for a competitive net return on their deposit, once tax and inflation are taken into account. Unfortunately, many traditional savings products are failing to deliver with both instant access and fixed rate bonds continuing to offer record low rates.
Potential for higher returns
By linking your returns to the FTSE 100 Index, this structured deposit plan offers the potential for higher returns than those that are available from more traditional products such as fixed rate bonds. The upside is the potential for higher returns whilst the downside is that since your return is linked to the performance of the UK stock market, unlike a fixed rate it is not guaranteed. This is the trade off for the opportunity to receive higher returns.
Potential return of 33% after 6 years
The Investec FTSE 100 6 Year Defensive Deposit Plan protects your initial deposit whilst offering a fixed return of 33%, provided the level of the FTSE 100 Index at the end of the plan is higher than 90% of its value at the start of the plan, subject to averaging. So the FTSE can fall up to 10% and you still receive the full growth return. The 33% fixed return is equivalent to around 4.85% AER. If at the end of the six year term the Index is equal to or lower than 90% of its value at the start of the plan, you will not receive a return but your original capital will be repaid.
Since the fixed return on offer is dependent on the performance of the FTSE 100 Index, the defensive element of the plan is an important one to understand. Rather than the Index having to finish higher than its value at the start of the plan, the Index can fall up to 10% and the fixed return of 33% is still paid. Whilst the FTSE remains at what are historically relatively high levels, this could be an appealing feature.
As we move into August, we take a look at our five most popular investment plans since British summer officially started on 21st June. This has already been a busy summer, with a growing number of competitive income and growth plans on offer. 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 investments feature heavily in this, the first of a two part feature of our summer’s most popular plans.
1. 10% per year, even if the FTSE stays flat
With the potential for the double digit returns and the opportunity to mature early from year one onwards, the Investec Enhanced Kick Out Plan has been one of our best selling kick out plans and this summer is no exception. The plan continues to be a top performer, and will return 10% per year (not compounded) provided the value of the FTSE 100 Index at the end of each year (from year 1 onwards) is higher than its value at the start of the plan – so although the Index does have to rise, this only needs to be by a single point. Your initial capital is at risk if the Index falls by more than 50% during the term and also finishes below its starting value, in which case your capital will be reduced by 1% for each 1% fall.
Fair Investment view: “Knowing how to invest when the FTSE is high continues to be a challenge for investors, but the potential for high returns as early as year 1, even if the FTSE only rises by a single point, perhaps helps to explain why this is our best selling plan with both growth investors and those looking for New ISA investment ideas. We’ve not been able to talk about the potential for double digit returns for a while, so if the combination of high growth returns, the ability to mature early, as well as some capital protection against a falling market sounds appealing, this might make for a compelling opportunity in the current investment climate.”
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2. 7.32% p.a. fixed income, monthly payments
The Meteor 4 Year Income Plan is the first fixed income plan to feature in our summer’s hot list and offers 7.32% annual income (paid as 0.61% each month). One of the main reasons for the high level of fixed income is that the return of your initial capital is dependent on the performance of four FTSE 100 shares rather the Index as a whole. Should the value of the lowest performing share be less than 50% of its value at the start of the plan, your initial capital will be reduced by 1% for each 1% fall, so you could lose some or all of your initial investment.
Fair Investment view: “If you invest within an ISA, the 7.32% fixed income is equivalent to 9.15% p.a. for basic rate tax payers and 12.20% p.a. for higher rate tax payers. The four year term and the monthly fixed income on offer may well appeal to income investors but you should also consider that there is a higher risk to your capital than an investment based on the performance of the FTSE 100 Index.”
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Income investments are some of our most commonly requested investment plans – whether it’s investors who want to use their ISA allowance to receive income, or people transferring existing investments in the quest for higher returns. If you are looking for a high level of fixed income and want to know exactly how much you will paid, when, and for how long, the 4 Year FTSE 4 Monthly Income Plan could offer a compelling investment opportunity.
Savers and investors face contrasting fortunes
Income is without doubt the most common demand put on our capital and this requirement commonly increases the older we get. As we start to reduce our working hours or look towards retirement, the objective of finding a competitive income stream from our investments becomes increasingly important. As we continue to face income pressure from sustained low interest rates and with future uncertainty around what the recently record-breaking FTSE might yield in the coming years, the balance of risk versus reward on offer from this plan is certainly worth a closer look.
In a nutshell
The Meteor 4 Year FTSE 4 Monthly Income Plan pays a fixed income of 7.32% each year, with monthly payments of 0.61% paid to you regardless of what happens to the stock market. The risk is that the return of your capital at the end of the four year term is based on the performance of four FTSE 100 shares – Rio Tinto plc, International Consolidated Airlines Group, Pearson plc and Aviva plc. If the value of the lowest performing share is less than 50% of its value at the start of the plan, your initial capital will be reduced by 1% for each 1% fall. You could therefore lose some or all of your initial investment. The four year term and the monthly fixed income on offer may well appeal to income investors but you should also consider that there is a higher risk to your capital than an investment based on the performance of the FTSE 100 Index.