Archive for the ‘Investment ISAs’ Category

How to tackle inflation with your savings and investment strategy

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The latest figures reported by the Office for National Statistics show that inflation reached a five year high of 3% in the 12 months to the end of September. This rate is 1% above the Bank of England’s target and is likely to continue to rise, as the Bank predicts that inflation will likely reach 3.2% when October’s figures are released later this month. This rapid rise in the level of inflation has also contributed to the Bank of England raising their base interest rate for the first time in 10 years, from 0.25% to 0.5%.

Increasing inflation and interest rate hikes can be a dangerous combination, and as the cost of living for many will rise, so we will also start to ask more of our capital than we have done for some time. The increased demand for more income and/or capital growth may make investors evaluate their financial position and review their savings and investment portfolio. So here we take a look at some of the main factors to consider when considering a change of strategy.

Savings and Investment Strategy

Whether you have just started saving, or you already have an amount of capital built up over the years, it is understood that spreading your money across a number of different areas and products in order to diversify your risk, is a better strategy than putting all your eggs in one basket. A mixture of instant access, fixed rate bonds and investment plans may therefore provide a useful framework for a savings and investment strategy.

Instant Access

For many savers and investors, putting a percentage of their capital into an instant access account may be an essential part of a diversified portfolio. These accounts normally provide a variable rate of interest (which may or may not include an introductory bonus) and usually offer unlimited withdrawals, which can be made without the need to give any notice period. One of the advantages of an instant access account is that your capital is not at risk, and this is one of the main reasons these accounts are used, with most accounts also falling within the FSCS.

Although this combination of flexibility and capital protection are attractive features, it should be noted that the best instant access account interest rates on the market, such as the 1.30% AER variable from RCI Bank’s Freedom Savings Account, are still significantly below the rate of inflation. Indeed, at 3.0% this account doesn’t even pay half the prevailing rate.

Fixed rate bonds

A fixed rate bond is an account where your capital is locked away for a set period of time, during which you are not able to access your cash. The term is known and selected at the outset, and is normally in the range of one to five years. For many years, fixed rate bonds were the corner stone of many saver’s cash portfolio.

In return for tying up your money, fixed rate bonds usually offer the saver higher interest rates than are generally on offer from instant access accounts, for example, Vanquis Bank’s 5 Year Fixed Rate Bond is currently paying 2.40% AER fixed. Since the rate is fixed, it is a guaranteed not to change for the term of the bond, whilst some bonds also allow you to choose the frequency of your interest payment, for example monthly or annually.

However, it is also important to note that even the best fixed rate bonds on the market do not provide interest rates higher than 2.5%. Therefore, with inflation currently running at 3.0%, even a long term commitment of five years would fail to allow the value of your money to keep up with the rise in the cost of living.

Cash falling short

Instant access and Fixed Rate Bonds are both cash accounts, which means that your capital is protected and returned in full when you either transfer your instant access account, or your fixed rate bond comes to the end of its term. The only risk to you not receiving your capital back is that the bank becomes insolvent, although most of these accounts are covered by the UK FSCS or a European equivalent.

However, we have also revealed that based on the current rate of 3% inflation, none of these accounts beat inflation, and so there is the additional risk with cash in that your money is losing value in real terms. Cash therefore is not without its own risks.

Investment Plans

As you can see, long gone are the days where cash products alone can generate enough interest and income for savers to effectively grow their capital whilst hedging against inflation. In an attempt to replicate some of the returns of yester-year, more and more savers are having to consider  taking on more risk. One way  to access potentially higher returns is by investing in Investment plans.

This type of plan offers a defined return (either an income, fixed or variable, or capital growth), for a defined level of risk (normally aligned to the performance of an underlying stock market index, e.g. the FTSE 100 Index.

Investment plan features

One of the main reasons for considering an investment is the potential for the attractive headline rates on offer. There are a wide range  of investment plans to choose from in today’s market and all of them  aim to provide the investor with the opportunity to access returns higher than the current rate of inflation. Two popular examples of income investment plans are the Investec FTSE 100 Defensive Income Plan offering investors with 7.25% annual income, and Investec’s FTSE 100 Enhanced Income Plan paying a fixed income of 4.35% per year. These plans normally have a term of between 5 and 10 years which is known at the outset, prior to investing.

A feature which is unique to investment plans is that they offer conditional capital protection. This means that your capital is returned at the end of the term unless the underlying investment, usually the FTSE 100 index, falls by more than fixed percentage below its value at the start of the plan. This percentage is normally in the region of 30% to 50% and so investors may still receive a full return of their capital even if the market falls up to 50%. However, if the Index has fallen below the fixed percentage, you will lose the amount the Index has fallen, so you could lose some or all of your initial investment.

Savings and Investment Portfolio Example

In this example we take a product from each of the three areas covered above (instant access, fixed rate bond and investment plans) to show you how a combination of cash and investment plans can keep your capital producing income which is in line with the current rate of 3.0% inflation. Targeting a five-year timeframe, based on a savings and investment portfolio of £100,000, the capital is split as follows:

  • £15,000 into RCI Bank’s Freedom Savings Account, paying 1.30% AER variable
  • £45,000 into Vanquis Bank’s Five Year Fixed Rate Bond, paying 2.40% AER fixed for five years
  • £40,000 into Investec’s FTSE 100 Enhanced Income Plan, paying 4.35% p.a. fixed for five years

RCI Bank and Vanquis Bank both have a monthly income option, whilst Investec’s plan pays monthly as well. RCI’s Freedom Savings Account has no fixed term whilst the other two both have a fixed term of five years.

Income achieved

Based on the above investments, the cash part of the portfolio would achieve £1,275 per year (£160.25 per month). The investment part of the portfolio would achieve £1,740 per year (£145 per month) and would be fixed for five years.

Combined, this equates to £3,015 per year (3.015% yield) or £251.25 per month, most of which would be fixed for five years except the £195 from the instant access account which could go up or down over the next five years, although you should note that any changes to the RCI Bank rate are passed on to existing customers as well as new customers. By comparison, if the investor placed all of the £100,000 into the RCI instant access account, they would only receive £1,300 per year in interest.

Treatment of capital

£60,000 would be in cash based savings accounts, with Vanquis Bank deposits eligible for the UK’s FSCS protection up to the £85,000 limit, whilst deposits held with RCI Bank are eligible for the French deposit protection scheme (the FGDR), which protects the first €100,000 per customer.

The Investec plan puts your capital at risk, with a return of your initial £40,000 dependent on the performance of the FTSE 100 Index. Your capital is returned at the end of the five years unless the FTSE has fallen by more than 40% from its value at the start of the plan. If it has, your initial capital will be reduced by 1% for each 1% fall – therefore you could lose some or all of your original £40,000 investment.

In conclusion

The above savings and investment example combines cash and investment products to give an annual yield of just over 3%, the majority of which (85%) is fixed for five years, thereby offering a high degree of predictable income of a fixed timeframe. 60% of the portfolio is in cash and so is capital protected, whilst 40% is invested and so puts your capital at risk.

Whatever you decide to do when reviewing your current savings and investments or considering options for a new investment, taking a view on inflation, what might happen to it in the future, and most importantly the impact this will have on your capital, are all sensible places to start.

 

Click here to compare Instant Access Accounts »

Click here to compare Fixed Rate Bonds »

Click here to compare Fixed Rate investments »

Click here to compare Investment plans »

 

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 investment. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.

The investment plans mentioned are structured investment plans that put your capital at risk and are not covered by the Financial Services Compensation Scheme (FSCS) for default alone. There is a risk of losing some or all of your initial investment. 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 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. These investments do not include the same security of capital which is afforded to deposit accounts.

AER stands for the Annual Equivalent Rate and illustrates what the interest rate would be if interest was paid and compounded once each year.

Investment Focus: Investec FTSE 100 Defensive Income Plan

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Last updated: 07/11/2017

With the increase to 2.9% for inflation over the 12 months to August, the focus on income and what we are earning from our capital is most certainly on the up as well, with many investors looking for the opportunity to secure more income in order to counter the effects of this rise in the cost of living. Despite only on its third issue, the FTSE 100 Defensive Income Plan from Investec is proving to be one of our most popular income investments ever, with the opportunity to receive a high level of income, even if the stock market goes down by up to 40%, thereby giving the plan an attractive balance of risk versus reward. Here we take a closer look at what exactly the plan has to offer.

Plan overview – income

The FTSE 100 Defensive Income Plan from Investec offers investors an annual income of up to 7.25%. Income payments are made quarterly, and the plan has a maximum fixed term of eight years, although it could also mature early or ‘kick out’ at the end of each year from year 2 onwards.

Plan overview – capital

If the plan does mature early, your capital is returned with your final income payment. If the plan runs for the full eight years, you will receive your initial capital provided the FTSE 100 Index has not fallen by more than 40% from its value at the start of the plan. This is known as conditional capital protection and is unique to structured investment plans such as this. If it has fallen below this level, your initial capital is reduced by 1% for each 1% fall in the Index, so you could lose some or all of your initial investment.

FTSE linked

The plan is linked to the performance of the FTSE 100 Index (‘the Index’ or ‘the FTSE’), with both the level of income you receive, and the treatment of your initial capital, dependent on what happens to the FTSE in the coming years. The FTSE 100 Index tracks the share prices of the 100 largest companies listed on the London Stock Exchange, and is widely recognised as the proxy benchmark for most investment managers, especially those investing predominantly in UK equities.

Potential 7.25% annual income

The FTSE is measured at the start of the plan, and then again at the end of each quarter thereafter. If the Index is above 80% of its starting level (i.e. it can fall almost 20%), a 1.8125% income payment is made. If the Index has fallen by 20% or more, no income payment is made for that quarter. The plan also includes a second, more defensive option, which offers up to 5.50% per year provided the FTSE does not fall by 40% or more at the end of each quarter.

Defensive income

There are very few investments out there offering the potential for such high income yields, particularly when income payments can be achieved even if the FTSE falls below its current levels. So for investors who are not confident the FTSE will rise in the future, but also want the potential to receive income that is significantly higher than the current rate of inflation, the Defensive Income Plan could be an attractive option.

Investment term

The FTSE 100 Defensive Income Plan requires an 8 year commitment from investors, which means that investors should be prepared to commit their capital for this length of time before investing. Although you are able to withdraw your money early, the plan is designed to be held for the full term and early withdrawal may result in you getting back less, or more, than you invested, since it is based on the market value as at the date of the withdrawal.

Kick-out opportunity

Despite having a maximum term of eight years, the plan also has the ability to mature early or ‘kick out’, which is also dependent on the FTSE. The plan will mature early in the event that the FTSE has gone up by 5% or more, annually from the end of the second year onwards. This means that should the FTSE increase by this amount in the future, investors will receive a final income payment along with a full return of their initial capital.

Conditional capital protection

Another feature of this plan is that it offers conditional capital protection. This means the initial capital invested is at risk if the FTSE falls by more than a fixed percentage, in this case, more than 40% below its value at the start of the plan. If it does, your investment is reduced by 1% for each 1% fall. For example if the FTSE fell by 39% then the investor’s capital is not affected, but if the FTSE fell by 41% then the investor would lose 41% of their capital. You should therefore only consider this investment if you are prepared to lose some or all of your initial investment.

Risk v reward

The principle of risk versus reward means that the search for potentially higher returns leads us to consider putting our capital at risk. A good benchmark for assessing the merits of an investment is to compare what returns can be secured from a fixed rate deposit over a similar timeframe (fixed income plus full capital protection), with the potential returns from the capital at risk product. One may then evaluate whether the risk to the capital is worth the opportunity to receive a potentially higher level of income.

Fair Investment view

Commenting on the plan, head of savings and investments at Fair Investment Company, Oliver Roylance-Smith, said: “This plan has two options, one paying up to 7.25% unless the FTSE falls 20% or more, the other paying up to 5.50% unless the FTSE falls 40% or more. Receiving such a high income, even if the FTSE goes down, makes for an attractive investment opportunity in any climate, not least one where we are seeing a sizeable increase in the day to day cost of living.”

He continued: “The plan also has the ability to mature early and return a final income payment along with your initial investment, and provides some capital protection against a falling stock market in the event it runs the maximum eight year term. By combining high income potential, the opportunity for early maturity and conditional capital protection, it is perhaps understandable why this plan has generated a great deal of interest with our investors.”

This plan accepts new ISA investments up to the £20,000 ISA allowance, Cash ISA and Stocks & Shares ISA transfers, as well as non-ISA investments. The minimum investment is £3,000.

 

Click for more information about the Investec FTSE 100 Defensive Income Plan »

 

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 investment. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.

Tax treatment of ISAs depends on your individual circumstances and is based on current law which may be subject to change in the future. ISA transfer charges may apply, please check with your provider.

This is a structured investment plan that is not capital protected and is not covered by the Financial Services Compensation Scheme (FSCS) for default alone. There is a risk of losing some or all of your initial investment. 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 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.

Investment Focus: Investec Enhanced Kick Out Plan

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Last updated: 07/11/2017

A kick out investment plan is a fixed term investment plan that has the ability to kick out or mature early each year, providing a fixed growth return along with a full repayment of your initial capital.  These investments have proved popular with a wide range of investors looking for high investment returns, especially since growth can be achieved even when the market does not perform strongly.

Investec’s Enhanced Kick Out Plan offers the potential to achieve one of the highest headline growth rates of any kick out investment that is linked to the performance of the FTSE 100 Index. 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.

Plan summary

The plan has the potential to provide 9.35% growth per year (not compounded) so long as the FTSE 100 index, at the end of each year, is higher than its value at the start of the plan.  Although to achieve these returns the FTSE has to rise, it only needs to increase by a single point. In the event that the plan kicks out, then your capital is returned in full along with the accrued interest.  If the plan does not kick out, then your capital is at risk. In the event that the FTSE has fallen by more than 40% from its level at the start of the plan, your capital will be reduced by 1% for every 1% fall.

Kick Out (early maturity)

The plan comes with the ability to kick out or mature early, depending on the performance of the FTSE. The plan has a maximum term of six years. However, at the end of each year, if the FTSE is higher than its starting value (subject to averaging – see below) the plan will mature early.  The type of plan has become popular with all types of investors, as it can provide competitive investment returns and even outperform the market in the event that the market stays relatively flat.

The use of averaging

When calculating the level of the FTSE at the end of each year for the purposes of comparing it with its value at the start of the plan, the plan takes the average closing levels of the Index for the five business days up to and including the end of each plan year. The use of averaging can reduce the adverse effects of a falling market or sudden market falls whilst it can also reduce the benefits of an increasing market or sudden market rises before the maturity.

Potential for high returns

As well as the ability to mature early, the plan’s potential to achieve almost double digit returns draws attention from a wide range of investors.  The headline rate for the current issues of the Enhanced Kick Out Plan is 9.35% annual growth, and although the return is not compounded, it will be paid for every year the investment has been in place. The opportunity to achieve such high returns, even if the FTSE’s growth is relatively flat, is perhaps the main reason for why this plan has been so popular with our investors.

Some capital protection from a falling market

It is important to note that an investor will have to put their capital at risk in order to receive potentially higher returns than are available from cash deposits, since any growth and the treatment of your initial capital are both linked to the performance of the FTSE.

The plan does offer some capital protection as well. If the plan fails to kick out by the end of the sixth year, the return of your initial investment will depend on whether the FTSE has dropped more than 40% of its starting value. This means that the FTSE can fall up to 40% of its starting value and you will still receive a full return of your initial capital. Conversely, if the FTSE has decreased by more than 40% then the capital you invested will be reduced by 1% for every 1% the Index has fallen.

Defined risk and defined returns

One of the reasons this investment plan has become so popular with our investors, is that the potential returns are stated up front, so if any growth is achieved, you will know exactly what the return will be. These defined returns for a defined level of risk make it easier to weigh up whether you are prepared to put your capital at risk for the potential higher returns on offer, since you know precisely what needs to happen to receive the interest rate you want.

Investec as counterparty

The Enhanced Kick Out is a structured investment plan which means your investment is not the same as investing directly in the stock market. When you invest in a structured investment plan, you are essentially purchasing securities issued by Investec Bank, which are designed to produce the stated returns on offer.  In this case, Investec is known as the counterparty to your investment, and means that their ability to meet their financial obligations becomes an important investment consideration with this type of plan.

Credit rating

Fitch is one of main global credit rating agencies in the industry and Investec Bank plc has a credit rating of BBB- with a stable outlook. The ‘BBB’ rating denotes an adequate capacity for payment of financial commitments although adverse business or economic conditions are more likely to impair this capacity with the ‘-‘ signifying it is at the lower end of this rating grade. This means that Fitch believes that Investec Bank plc has a good credit quality and indicates that expectations of default risk are currently low.

Investec Bank Plc

Investec is an international specialist bank and asset manager with its main operations in the UK and South Africa. Established in 1974, they provide a range of financial products and services and specialise in a number of areas, particularly within the banking sector. They are also a market leading provider of investment plans and structured deposits.

Investec is an international specialist bank and asset manager with its main operations in the UK and South Africa. Established in 1974, they currently employ around 9,000 people and as at 31st March 2017, look after £150.7 billion of customer assets. They provide a diverse range of financial products and services and specialise in a number of areas, particularly within the banking sector. Their banking operation looks after £29.1 billion of customer deposits and they are also a market leading provider of investment plans and structured deposits in the UK.

ISA friendly

In addition to non-ISA investments, this investment has been one of our most popular with ISA investors and is available as a New ISA up to the current £20,000 ISA allowance, and also accepts transfers from both Cash ISAs and Stocks & Shares ISAs. Please check the plan details for any application or transfer deadlines that apply. The minimum investment is £3,000.

Fair Investment conclusion

Commenting on the plan, Oliver Roylance-Smith, head of savings and investment at Fair Investment Company Limited, said: “The Enhanced Kick Out Plan from Investec has been our most popular kick out plan for some years. The reason why investors are drawn to this plan will be varied and will of course depend on your view of what might happen to the FTSE in the coming years, but the ability to produce close to double digit returns even if the market stays relatively flat is likely to be an attractive feature.”

He continued: “The plan can also mature every year from year one onwards, whilst with other similar plans you may have to wait until at least year 2. Combined with offering some capital protection against a falling stock market and on balance, this plan could offer a compelling balance of risk versus reward in the current investment climate.”

 

Click here for more information about the Investec Enhanced Kick Out Plan »

 

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 investment. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.

Tax treatment of ISAs depends on your individual circumstances and is based on current law which may be subject to change in the future. ISA transfer charges may apply, please check with your provider.

This is a structured investment plan that is not capital protected and is not covered by the Financial Services Compensation Scheme (FSCS) for default alone. There is a risk of losing some or all of your initial investment. 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 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 investment does not include the same security of capital which is afforded to a Cash ISAs.

Investment Focus: up to 11.62% per year for up to 10 years

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Potential for up to 11.62% each year for up to 10 years…

Depending on which of the three investment options is selected, the latest issue of this popular plan from Mariana offers investors the potential for a growth return of either 6.27%, 8.72% or 11.62% per year, all dependent on the performance of the FTSE 100 Index. In addition, the plan offers the ability to mature early or ‘kick out’ each year from the end of year three onwards and is the first plan of its kind to extend the maximum term to 10 years, hence the plan name. With the potential for such high headline returns from a plan based on the FTSE only, we take a closer look at how this investment works in order to better understand the risk versus reward.

Three options

As it approaches its second anniversary since launch, the current issue of the 10:10 Plan offers the potential for double digit growth on your capital depending on the performance of the FTSE 100 Index. Investors have three options, the difference between them being the level the Index has to reach in order for the plan to make a growth payment (along with a return of your original investment).

The potential for high returns

For those targeting the higher return of 11.62% each year (not compounded), the FTSE must end the plan year at least 10% higher than its value at the start of the investment. The other two options offer 8.72% provided the FTSE is at or above its starting level, and a more defensive option offering 6.27% provided the FTSE has not fallen by more than 10%. The return is not compounded, but will be paid to you for each year the investment has been in place. If the plan does produce an investment return, your initial capital is also returned to you in full along with the growth payment.

Capital at risk

If the plan does not kick out at all, the return of your initial capital is also dependent on the FTSE 100 Index with your capital put at risk if the Index at the end of the investment term is more than 30% lower than its value at the start of the plan. If it is, your initial investment will be reduced by 1% for each 1% fall, so you could lose some or all of your capital.

Kick out investment

The term ‘kick out’ refers to the ability of the investment plan to mature early depending on the movement of the FTSE 100 Index. The 10:10 Plan has the potential to mature at the end of each plan year from year three onwards, provided the value of the Index meets one of the required levels, depending on which option you invest in.

The FTSE 100 Index

Plans linked to the FTSE 100 Index provide a potential return against what is widely recognised as the proxy benchmark for most investors and investment managers in the UK. Since the historical volatility of this stock market 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.

Investment term

The plan broke new ground when it launched in 2015 in that the maximum term is set at 10 years rather than the more common five or six years of most structured investment plans. This could be seen as an advantage over plans with a shorter term, for those investors who would prefer to stay invested should we experience a market downturn in anticipation of markets recovering.

Although the plan can be encashed prior to the end of the term, the proceeds you receive will depend on a number of market factors and could mean that you may receive less than your initial investment. Since the investment is designed to be held for the full term it should only be considered by those who are able to invest their capital for up to ten years.

Some capital protection from a falling market

Should the plan provide a growth payment then this is made to the investor along with a full return of your initial investment. However, if the plan runs the full 10 years and fails to provide any growth, the return of your initial capital is conditional on the FTSE 100 Index not falling by more than 30% below its value at the start of the investment. This is known as conditional capital protection and is measured at the end of the investment term only.

Provided the Index has not fallen below this level, you will receive a return of your initial capital, but if it has, your initial investment will be reduced by 1% for every 1% fall in the FTSE, so you could lose some or all of your capital. In this situation you would lose at least 30% of your initial capital.

Counterparty

Unlike an investment fund, this plan uses your investment to purchase securities issued by Natixis, part of the second largest banking group in France, and so their ability to be able to meet their financial obligations become an important consideration. This is known as counterparty risk (or credit risk) and means that in the event of Natixis going into liquidation, you could lose some or all of your initial investment as well as the payment of any growth return. In this event you would not be entitled to compensation from the Financial Services Compensation Scheme (the ‘FSCS’).

Credit ratings and agencies

One accepted method of determining the credit worthiness of a counterparty is to look at credit ratings issued and regularly reviewed by independent companies known as ratings agencies. Standard and Poor’s is a leading credit ratings agency and as at 22nd May 2017, Natixis has been attributed an ‘A‘ rating with a stable outlook. The ‘A’ rating denotes a strong capacity to meet its financial commitments but could be more susceptible to adverse economic conditions than companies in higher-rated categories. The stable outlook indicates that the rating is unlikely to change in the short to medium term (between 6 months to 2 years).

ISA friendly

We expect this investment to be popular with both non-ISA and ISA investors. The plan is available as a new ISA up to the current limit of £20,000 and also accepts transfers from both Cash ISAs and Stocks & Shares ISAs.

Minimum investment

The minimum investment is £10,000 and investors can also split their investment across any of the three options on offer provided the total invested meets this minimum level.

Fair Investment conclusion

Oliver Roylance-Smith, head of savings and investments at Fair Investment Company, commented on the plan: “This plan offers some of the highest headline returns from a kick out investment linked to the performance of the FTSE 100 Index, although the 30% capital at risk barrier is low compared to most other plans. The three options on offer cater for a wide range of investor views as to what might happen to the FTSE in the coming years whilst the 10 year maximum term also offers some reassurance to investors who consider a downturn could affect a return on their investment.”

The plan is open now for new ISA investments (maximum £20,000), ISA transfers and non-ISA investments.

 

Click here for more information about the Mariana 10:10 Plan »

 

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 investment. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.

Tax treatment of ISAs depends on your individual circumstances and is based on current law which may be subject to change in the future. Always remember to check whether any charges apply before transferring or switching an ISA.

This is a structured investment plan that is not capital protected and is not covered by the Financial Services Compensation Scheme (FSCS) for default alone. There is a risk of losing some or all of your initial investment. 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 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.

Investment Focus: new launch offering 33% return even if the FTSE falls 40%

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Since there will always be investors who are not confident the markets will rise over the medium term, there will always be the potential for defensive investments to appeal – and the range of plans on offer has certainly grown in recent years. A defensive investment plan is simply a plan that is designed to provide an investment return even if the stock market fails to rise, or in some circumstances goes down. This week we take a closer look at a new launch defensive plan that offers a 33.0% fixed return even if the FTSE has fallen up to 40%.

The FTSE highs and lows

Since the FTSE 100 Index (‘the FTSE’) broke through the 7,000 point barrier for the first time in March 2015, it has been as low as 5,537 points (February 2016), and has reached its highest closing level on record at 7,429 points (March 2017). Indeed, the FTSE has been well over 7,000 points since the start of the year and whilst the Index remains at what are historically high levels, defensive investment plans have become increasingly popular.

Defensive investment plans

This type of plan attempts to offer investors the best of both worlds, by balancing less of the investment upside, with the opportunity to achieve these returns even if the market fails to rise. This means they are designed for investors who have a neutral or negative outlook of what could happen to the stock market in the coming years, and yet who would still like the opportunity to receive investment level returns.

Plan summary

The FTSE Defensive Growth Plan from Focus aims to provide a fixed return of 33% at the end of the six year term, and will do so provided the value of the FTSE at that point is at least 60% of its value at the start of the plan. Therefore, the FTSE can fall up to 40% and investors would still receive a 33% growth return, along with a full return of their original capital.

If the Index has fallen by more than 40% at the end of the term, no growth will be achieved and your initial capital will be reduced by 1% for each 1% fall. This plan therefore puts your capital at risk and you could lose some or all of your initial investment.

33% return even if the FTSE falls up to 40%

This is a strong headline since investors will receive a positive return, even if the FTSE falls by quite some way from its value at the start of the plan. This means that even if you are not confident the FTSE will rise at all, you could still receive a fixed return of 33% unless the FTSE falls by more than 40%. The 33% return is equivalent to 4.86% compound annual growth.

‘Defensive’ feature

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 40% and the fixed return of 33% is still paid. Whilst the FTSE continues at what are historically high levels, this ‘defensive’ feature could be an appealing one, whist the fixed return is also paid if the FTSE goes up.

Some capital protection from a falling market

Provided the FTSE 100 Index has not fallen by more than 40% at the end of the term, the 33% growth return is paid to you along with a full return of your initial investment. Since the market can fall up to 40% before your initial investment is at risk, the plan offers some capital protection against a falling market. This should be considered in conjunction with the potential return on offer when reviewing the plan’s overall risk versus reward. Should the Index have fallen by more than 40%, your initial investment is reduced by 1% for each 1% fall. In this case you would lose at least 40% of your capital.

Defined risk and defined returns

One of the features of this plan is that the potential returns are stated up front, prior to investing. This allows the investor to consider the potential upside in the context of the amount of risk they are taking, since you know at the outset exactly what needs to happen in order to receive the stated level of growth as well as a return of your initial investment.

ISAs and ISA transfers

The plan accepts ISA investments up to the maximum £20,000 ISA allowance as well as ISA transfers, from both Cash ISAs and Stocks & Shares ISAs. You can also make non-ISA investments and the minimum investment into the plan is £5,000.

Credit risk & compensation scheme

This plan is a structured investment so your initial capital is used to purchase securities issued by the plan’s counterparty, Credit Suisse AG. This means that Credit Suisse’s ability to meet their financial obligations becomes an important investment consideration. If the bank fails or becomes insolvent, this could affect both the payment of any growth return as well as the return of your original investment, and you would not be covered by the Financial Services Compensation Scheme for default alone.

Credit ratings

Standard & Poor’s is one of the main global credit rating agencies and as at 9th June 2015, Credit Suisse AG has an ‘A’ credit rating with a stable outlook. The ‘A’ rating denotes a strong capacity to meet its financial commitments and the stable outlook indicates that the rating is not likely to change in the short to medium term, i.e. in the next 6 months to 2 years.

Credit Suisse AG profile

Credit Suisse AG is one of the world’s leading financial services providers and is a subsidiary of Credit Suisse Group AG. As an integrated bank, Credit Suisse Group AG offers a range of financial products and services across the areas of private banking, investment banking and asset management. Credit Suisse is headquartered in Zurich and as at the end of 2016, employs around 47,170 people and operates in 50 countries worldwide.

Fair Investment view

Commenting on the plan, Oliver Roylance-Smith, head of savings and investment at Fair Investment Company Limited, said: “Whist the FTSE continues at well over 7,000 points, if you are not confident that the markets will rise in the medium term it can be difficult to find investment ideas. Defensive plans such as these do offer an alternative, and with a product headline of a 33% growth return unless the FTSE 100 Index falls by more than 40%, the risk versus reward of this plan could make for a compelling opportunity. Of course this is dependent on you view of what might happen in the coming years, but if the FTSE had fallen up to 40% in 6 years time, and yet you still achieved 33% growth plus a return of your initial capital, some would consider that a good return on their investment.”

 

This plan is open for new ISA investments up to the £20,000 ISA allowance, Cash ISA and Stocks & Shares ISA transfers, as well as non-ISA investments, with a minimum investment of £5,000.

Click here for more information about the Focus FTSE Defensive Growth Plan »

 

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 investment. Fair Investment Company does not offer advice and any investment transacted through us is on a non-advised basis. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.

Tax treatment of ISAs depends on your individual circumstances and is based on current law which may be subject to change in the future. Always remember to check whether any charges apply before transferring or switching an ISA.

This is a structured investment plan that is not capital protected and is not covered by the Financial Services Compensation Scheme (FSCS) for default alone. There is a risk of losing some or all of your initial investment. 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 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.

Fixed rate Head to Head: National Savings and Investments Growth Bond versus Investec Income Plan

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On 11th April, National Savings and Investments (NS&I) launched the Investment Guaranteed Growth Bond (the NS&I Bond), as announced by the Chancellor in the last Budget. Offering a market leading fixed rate, this bond has been eagerly awaited and offers an attractive option for savers.  However, whilst savings rates overall continue at their historical lows, it is also understandable why some are choosing to consider moving up the risk spectrum in the hunt for higher fixed returns. With this in mind, here we offer a fixed rate head to head, as we compare the pros and cons of this market leading NS&I fixed rate bond with the market leading fixed rate investment.

Fixed rate bond

Capital protected fixed rate bonds have for some time been a cornerstone of many a saver’s portfolio. Probably the main reason is that they offer a fixed rate of interest, known at outset and which is normally paid for a fixed term, so you know exactly how much you will receive, when and for how long. Provided the bank remains solvent, your capital is also protected and returned to you in full at the end of the fixed term.

Fixed savings rate reality check

Despite the obvious appeal of a fixed return from our capital, the popularity of the fixed rate bond has been diminishing in line with the general trend of falling savings rates. This is particularly pronounced in the last five years, for example in April 2012, you could secure a one year fixed rate paying you 3.50% AER, and a five year offering 4.40% AER fixed. Now the top savings rates over the same terms are in the region of 1.50% and 2.15%, equivalent to falls in interest of 57% and 51% respectively.

These significant drops have not gone un-noticed, perhaps best illustrated by the increased use of the Stocks & Shares ISA over the Cash ISA we have seen in recent years, as interest rates available on the latter have declined substantially and so more savers consider taking on more risk in the hunt for higher returns.

Fixed rate investment

The need for a fixed and regular income is as strong as it is ever has been, however it is also the case that most investments only offer a variable income, and therefore do not offer the predictable income stream that is so important to many who are considering what to do with their capital. But although investments generally offer a variable income, our best selling income investment plan does offer a fixed return, which perhaps helps to explain why the FTSE 100 Enhanced Income Plan from Investec Bank (the Investec Plan) has been so popular.

NS&I versus Investec

The most important difference between these two products is their treatment of your initial capital. Your investment into NS&I’s Bond is fully protected by HM Treasury, and so is returned to you at the end of the term, regardless of any other market factors. Investec’s Plan however, not only relies on the bank’s solvency in order to return your capital at the end of the investment term, but this is also dependent on the performance of the FTSE 100 Index, and so your capital is at risk.

We will now take a closer look at the key features of these two market leading fixed rates:

Fixed term

Both products have a fixed term. The NS&I Bond has a fixed term of three years whilst the Investec Plan is fixed for five years. Fixed terms often appeal to those who wish to plan around this and combined with a fixed rate, offer the peace of mind of knowing exactly what will be paid and for how long.

Fixed rate

The NS&I Bond pays a fixed rate of 2.20% AER, which is significantly higher than the next best three year fixed rate on the market (currently 1.91% with OakNorth Bank) and is more in line with the best longer term fixed rates with a term of five years or more. The latest issue of the Investec Plan offers an annual income of 4.56%, which is more than double that offered by the best capital protected fixed rate option available.

Payment frequency

Another important feature of fixed rate products is how often the interest is paid, and where it can be paid, especially for those looking to supplement their income. Interest on the NS&I Bond is paid annually and can only be added to the bond, whilst interest on the Investec Plan is paid monthly into a bank account of your choice. Monthly income is often cited as the most popular option since it is the most useful in terms of budgeting, and can be attractive when looking to supplement existing income or boost retirement income from your capital.

Interest payments

Interest on both accounts is paid to you gross. Interest from the NS&I Bond and any non-ISA investments into the Investec Plan will be subject to UK tax and will count towards your Personal Savings Allowance. New ISA investments or ISAs transferred into the Investec Plan will not be subject to tax.

Minimum/maximum contributions

Both plans only accept lump sum contributions. The minimum into the NS&I Bond is only £100, but perhaps the biggest limitation to the product is that it is restricted to a maximum balance of £3,000 per person. Investec’s Plan on the other hand has a minimum contribution of £3,000, which may be on the high side for some, but with a maximum investment limit of £1m, should cater for investors looking for a high fixed income.

Early closure

You can withdraw your money from the NS&I Bond before the end of the term but a penalty equal to 90 days’ interest will be deducted on the amount you cash in. The Investec Plan also includes the option to withdraw your money early however the value you receive will be a market value which is based on how long your investment has been running as well as market conditions at the time of cashing in. This could result in you getting back less than you originally invested and so this plan should be considered a fixed term investment, and only taken out if you do not need access to the capital for the next five years and accept the risk to your capital.

ISA option

The NS&I Bond does not accept ISA investments whilst the Investec Plan accepts both new ISAs and ISA transfers. Although the Personal Savings Allowance removes the tax liability on the interest earned for most savers, there are still a significant number of Cash ISA savers with accounts paying little or no interest, and with very poor returns on offer by the current range of fixed rate Cash ISAs. This could therefore be considered a viable option by utilising the ISA transfer, as well as new ISA investments up to the new £20,000 ISA allowance. ISA interest does not count towards the Personal Savings Allowance because it’s already tax-free. Please remember that your capital is at risk with the Investec Plan.

Offer period

The NS&I Bond launched on 11th April 2017 and accounts can be opened for 12 months from launch, with applications being accepted up to 10th April 2018. Investec’s current issue opened on 18th April with a closing date of 5th May for ISA transfers, and 26th May for new ISAs and non-ISA investments. The Investec Plan is now in its 34th issue and since its launch, a new issue has started immediately after the end of the previous issue.

Treatment of capital

Any investment into the NS&I Bond is fully capital protected and so will be returned to you at the end of the three year term. The Investec Plan puts your capital at risk, with your initial investment only being returned provided the FTSE 100 Index does not fall by more than 50% during the term of the plan. So although the plan does contain some protection against a falling stock market, if it does fall by more than 50%, and also finishes the fixed term lower than its value at the start of the plan, your initial investment will be reduced by 1% for every 1% fall, so you could lose some or all of your initial investment.

Credit risk & compensation scheme

Since the repayment of your investment into the NS&I Bond is backed by HM Treasury (as opposed to a normal bank deposit falling within the limits of the FSCS), the account is considered to be 100% secure. Any investment into the Investec Plan is reliant on the bank remaining solvent for the duration of your investment since otherwise you could lose any future returns as well as some or all of your initial capital. This means its credit rating becomes an important consideration and since it is not a deposit, any investment would not be covered by the FSCS for default alone.

Compared to inflation

The current rate of inflation is 2.3%, as measured by the Consumer Price Index. There has been an increasing threat of inflation rising further in the coming months and based on the number of savings accounts which fail to match or beat inflation, this is a genuine concern.

At 2.20% AER, the NS&I Bond fails to match inflation whilst the Investec Plan offers almost double the current rate of inflation. This higher level of income is the upside for putting your capital at risk, however, if the FTSE falls by more than 50%, you could lose some or all of your initial investment.

Fair Investment conclusion

Commenting on these market leading fixed rate options, Oliver Roylance-Smith, head of savings and investments at Fair Investment Company, said:

“Both options pay a fixed rate for a fixed term, regardless of the performance of the stock market, so the investor has the certainty of knowing at the outset exactly how much they will receive, when and for how long. When considering any sort of fixed rate product, it is imperative that the risks of each are fully considered and understood before committing, whether this is inflation risk, risk of capital loss or credit risk. This is in addition to the key features of the product such as the level of income on offer, how frequently it is paid and the minimum/maximum contribution levels.

He continued: “The NS&I Bond clearly offers a stand out rate when compared with other fixed rate bonds in the market of similar duration, so this in itself will make it popular. The main downside is the maximum contribution level of £3,000 so the additional interest earned from the higher rate will be relatively small. With the level of savings rates on offer across all fixed terms, there is a great deal of pressure on savers to consider alternatives and the Investec Plan is our best selling income investment, not least because it pays a fixed income which is unusual for an investment. The monthly payment frequency is also a popular feature, however in return for the high level of fixed income, your capital is at risk.”

 

The Investec FSTE 100 Enhanced Income Plan is now available for ISAs, ISA transfers and non-ISA investments, with a minimum investment of £3,000. Click here to find out more »

The NS&I Investment Guaranteed Growth Bond is now available to invest in online (non-ISA only), with a minimum investment of £100 and a maximum of £3,000. Click here to find out more »

 

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 investment. Fair Investment Company does not offer advice and any investment transacted through us is on a non-advised basis. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.

The Investec Enhanced Income Plan is a structured investment plan which is not capital protected and is not covered by the Financial Services Compensation Scheme (FSCS) for default alone. There is a risk of losing some or all of your initial investment. 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 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 their future performance.

Tax treatment depends on your individual circumstances and is based on current law which may be subject to change in the future. Always remember to check whether any charges apply before transferring an ISA.

AER stands for the Annual Equivalent Rate and illustrates what the interest rate would be if interest was paid and compounded once each year.

Our 10 best last minute ISA ideas for 2017

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Our 10 best last minute ISA ideas

With just over one week to go until the 5th April deadline, if you’re reading this then I will assume you have left using some or all of your £15,240 ISA allowance (2016/17 tax year) to the last minute. The good news is that not only is there still time to sort out this year’s ISA allowance, some of the ideas below also allow you to sort out next year’s £20,000 ISA allowance (2017/18 tax year) as well – the Double ISA option. As time is running out, here is a quick review of our best last minute ISA ideas…

1.    Our best-selling Investment ISA

For those looking for a high level of growth but also with the opportunity to mature early or ‘kick out’ each year, the Enhanced Kick Out Plan from Investec offers 10.65% for each year invested provided the FTSE 100 Index at the end of each year is higher than its value at the start of the plan (subject to averaging). This is our best selling growth plan with ISA investors over the last 12 months and also features a Double ISA option. Capital is at risk if the FTSE falls by more than 50%. Click here for more information »

2.    Fixed income Investment ISA

Investec’s Enhanced Income Plan is a regular ISA season top seller, mainly due to it paying a fixed income of 5.04% per year regardless of what happens to the stock market. The plan also has a fixed term and monthly income payments, so you know exactly how much you will paid, when, and for how long. This plan features a Double ISA option. Capital is at risk if the FTSE 100 Index falls by more than 50%. Click here for more information »

3.    Managed Portfolio Investment ISA

The Nutmeg ISA gives investors access to fully managed, globally diversified portfolios that are regularly rebalanced. The ISA is easy to set up, and you can choose the level of risk you wish to take. Annual fees start at 0.75%, reducing to 0.35% for larger investments, and the minimum investment is just £500, although for portfolios below £5,000 they also ask for a minimum monthly contribution of £100. ISA transfers are also accepted. Capital is at risk. Click here for more information »

4.    Defensive Investment ISA best seller

The Defensive Growth Plan from Investec offers a fixed return of 34% (equivalent to 5.0% compound annual growth) plus a return of your original capital, provided the FTSE 100 Index has not fallen by 50% or more at the end of the investment term. If it has, no growth will be achieved and your capital will be reduced by 1% for each 1% fall, so you could lose some or all of your initial investment. This plan also features a Double ISA option. Click here for more information »

5.    High Yield Investment ISA top seller

The Meteor FTSE Contingent Income Plan pays a quarterly income of 2.05% for each quarter the FTSE 100 Index does not end less than 20% below its value at the start of the plan. So even if the FTSE falls up to 20% each quarter, you would still achieve 8.20% annual income. This plan features a Double ISA option. Capital is at risk if the FTSE has fallen by more than 40% at the end of the investment term. Click here for more information »

6.    FTSE Tracker Investment ISA

Tracker investment plans usually offer investors a multiple of any growth in the FTSE 100 Index over a set term. The newly launched FTSE Enhanced Tracker Plan from Focus offers twice the rise in the FTSE after 6 years, with no upper limit on how much it can rise. The plan could also end after just 3 years at which point, provided the FTSE has risen by at least 10%, you will receive a fixed return of 45% plus your initial investment back. This plan also features a Double ISA option. Your capital is at risk if the FTSE has fallen by more than 40% at the end of the investment term. Click here for more information »

7.    Innovative Finance (Peer to peer) ISA

The Innovative Finance ISA (IFISA) is the latest type of ISA (introduced on 6th April last year) and is designed to provide a tax-free wrapper for investors in Peer-to-Peer Lending platforms. Crowd2Fund is an FCA regulated platform where your investment is used to lend to businesses that require funding. Initially, each business submits a business proposal for funding directly to Crowd2Fund and once received, their risk and due diligence team then review the proposal against their strict acceptance criteria. If successful, the business is then listed on the platform and investors pledge the amount they want to invest and the interest rate. The estimated APR (also known as the target APR) is currently 8.7%. The platform also accepts ISA transfers. Capital is at risk. Click here for more information »

8.    Junior Investment ISA

Charles Stanley offer a Stocks and Shares Junior ISA with a minimum lump sum investment of £500, or just £50 per month. They offer a fully-featured investment platform so you can tailor your portfolio as you want, alternatively they have a Foundation Fundlist which is a list of preferred funds across all of the major sectors, selected by their in house research team. There is a platform charge of 0.25% per annum with no additional charge for buying and selling funds. You can save up to £4,080 this tax year (£4,128 in 2017/18) and you can transfer in Child Trust Funds and existing Junior ISAs. Capital is at risk. Click here for more information »

9.    Self-select Investment ISA

You can open a Hargreaves Lansdown Stocks & Shares ISA with a lump sum of just £100 or you can start a monthly direct debit from just £25 per month. With their ‘Do-it-yourself’ ISA you can invest in over 2,500 funds, with no charge when you buy and sell funds and annual management charges starting at 0.45% per annum. You can also choose to invest in shares from as little as £5.95 per trade, as well as bonds, ETFs and investment trusts. Capital is at risk. Click here for more information »

10.   Low Monthly Contribution Investment ISA

If you are only looking to invest a small amount each month, The My Select (ISA) from Scottish Friendly allows you to invest from as little as £10 per month. You can stop, restart, raise or lower your payments whenever you want, and you have a range of Scottish Friendly funds to choose from including stock market and bond funds. As at 31/12/15, they look after assets worth more than £2.6 billion. Remember, the value of your investment can go down as well as up and you could get back less than your have paid in. Click here for more information »

 

Click here to compare Cash ISAs »

Click here to compare Investment ISAs »

Click here to compare our Top 10 Investment ISA plans »

Click here to compare Junior ISAs »

 

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 investment. Fair Investment Company does not offer advice and any investment transacted through us in on a non-advised basis. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.

The value of investments and income from them can fall as well as rise and you may not get back the full amount invested. Different types of investment carry different levels of risk and may not be suitable for all investors. The past performance of the FTSE 100 Index is not a guide to its future performance.

Some of the investments mentioned are structured investment plans that are not capital protected and are not covered by the Financial Services Compensation Scheme (FSCS) for default alone. There is a risk of losing some or all of your initial investment. 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 addition, you may not get back the full amount of your initial investment if the plan is not held for the full term.

Tax treatment of ISAs depends on your individual circumstances and is based on current law which may be subject to change in the future. ISA transfer charges may apply, please check with your provider.

2017 ISA season selections – our Top 5 Investment ISAs

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With only a few weeks to go before the end of the tax year, time is running out to maximise the tax benefits of your ISA allowance before the deadline on 5th April 2017, otherwise it will be lost forever. This has already been another very busy ISA season, and whilst Cash ISA savings rates continue at their historical lows, it is perhaps not surprising that the trend in the increased use of the Stocks & Shares ISA that has taken place over the last couple of years, is still continuing. So to help you know where our other investors are putting their money this ISA season, we bring you our most popular Investment ISAs.

Our Top 5 Selections

Below we have listed some of our most popular Investment ISA plans, featuring both income and growth investments. With income continuing to play a critical role for many investors, the attraction of having tax free income is understandable. Whilst for investors looking for growth, the popularity of defensive investments is reflected in our selections, as the level of the stock market in recent years has led more and more investors to search for opportunities that offer investment level returns even if the market goes down slightly.

Your ISA allowance

The ISA allowance for the current tax year (2016/17) is £15,240, whilst all of the plans detailed below accept Cash ISA and Stocks & Shares ISA transfers. All of the plans also offer a Double ISA option, whereby you can invest the current tax year ISA allowance as well as next tax year’s ISA allowance (2017/18 ISA allowance is £20,000) via one application form – thereby offering the opportunity to invest up to £35,240 into new ISAs. Please check the individual plan for further details and for any application deadlines that apply.

 

Potential 10.65% annual growth

With the potential for double digit returns and the opportunity to mature early from year one onwards, the Investec FTSE 100 Enhanced Kick Out Plan has proved consistently popular with a wide range of investors and has been our best selling Investment ISA again this year. The plan will return 10.65% annual growth (not compounded) provided the value of the FTSE 100 Index at the end of each year is higher than its value at the start of the plan (subject to averaging). 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, so you could lose some or all of your initial investment.

Fair Investment view: “On 1st March the FTSE closed at its highest level on record, but where will the market be in one year, or two year’s time? Depending on your view of what might happen to the FTSE 100, the ability to achieve 10.65% annual growth, even if the Index stays relatively flat, perhaps helps to explain why this plan has proved so popular. 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.”

Click here for more information »

 

Up to 8.20% annual income

The FTSE Contingent Income Plan from Meteor offers a quarterly payment of 2.05% during the plan if at the end of each quarter, the value of the FTSE 100 index has not fallen by more than 20% from its value at the start of the plan – that’s a potential 8.20% income each year. If the Index has fallen by more than this, no income would be paid for that quarter.

The plan has a maximum term of 10 years, but also offers the opportunity to receive your initial capital back in full before then – if the FTSE rises 5% or more at the end of each quarter (from year 2 onwards), you will receive your income payment for that quarter, along with a full return of your initial investment – this means your investment ends early. If the plan does not finish early, your initial investment is returned at the end of the plan provided the FTSE has not fallen by more than 40%, measured at the end of the fixed term only. If it has fallen below this level, capital will be reduced by 1% for each 1% fall, so you could lose some or all of your initial investment.

Fair Investment view: “Those seeking income from their investments often put the potential yield and frequency of payments as their top priorities, so the headline yield of up to 8.20% is attractive and the cap on any income is balanced against the conditional capital protection on offer, thereby offering a competitive balance of risk versus reward. At 8.20%, the potential income from this latest issue is the highest currently available from this type of plan – and with a maximum term of 10 years, this investment offers a long term, high income opportunity.”

Click here for more information »

 

5.04% fixed income each year

Our next plan is from Investec and is our best selling income investment this year, for both ISA and non-ISA investors. The current issue of the FTSE 100 Enhanced Income Plan pays a fixed income of 5.04% per year, with monthly payments of 0.42% paid to you regardless of the performance of 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: “The current issue of the Enhanced Income Plan is the first time since its launch that it has offered a five year fixed term (previously six years), whilst the plan continues to offer a fixed income, paid to you each month. Knowing exactly how much you will be paid, when and for how long are appealing features, and by offering a high fixed income rather than a variable income based on the performance of the stock market, this plans offers something different to income seekers.”

Click here for more information »

  

34% return even if the FTSE falls up to 50%

Defensive plans offer investors a competitive return on their capital even if the stock market goes down slightly. With the FTSE maintaining historically high levels in recent years, these plans have risen in popularity and the FTSE 100 Defensive Growth Plan from Investec is no exception. The plan offers a fixed return of 34%, provided the FTSE 100 Index at the end of the term is at least half of its value at the start of the plan (subject to averaging). So the FTSE can fall up to 50% and you still receive a fixed growth return of 34%. If at the end of the plan the FTSE has fallen by more than 50%, no growth will be achieved and 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 the FTSE had fallen up to 50% in 6 years time, and yet you still achieved 34% growth plus a return of your initial capital, would you consider that to be a good investment? Taking into account the performance of the FTSE in recent years, it is perhaps understandable why many investors are considering defensive investment plans. By offering the opportunity to return 5% compound annual growth provided the market does not fall more than 50%, this plan could be appealing for ISA investors who wish to take a defensive view of what might happen to the stock market in the medium term.”

Click here for more information »

 

Potential 7% annual growth even if FTSE falls up to 35%

Following on with the theme of defensive investments, the newly launched FTSE 100 Defensive Step Down Kick Out Plan from Investec offers the opportunity for 7% for each year invested (not compounded), provided the FTSE 100 Index is above the required level at the end of each year. The required level is 100% of its starting value at the end of year 2, and then reducing each year thereafter down to 65% in the final year. So if the plan kicks out in the final year, you would receive 42% growth along with a full return of your initial investment.

If the FTSE is below the required level each year no growth return will be achieved, and at the end of the plan your original capital will be returned unless the FTSE 100 Index has fallen by more than 40% at the end of the term (subject to averaging). If it does, and also finishes at or below 65% of its starting value, 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: “For those investors concerned about the historically high level of the FTSE and would therefore like to include a defensive element to their investment, this plan offers the opportunity for investment level returns not only if the FTSE goes up, but also if it stays flat or even falls by almost 35% in the coming years. By combining this with some capital protection should the stock market fall, this plan could offer a compelling balance of risk versus reward for those who are not confident that the FTSE will rise significantly in the medium term.”

Click here for more information »


Important reminder – why do an ISA?

One of the main reasons for using an ISA is it’s tax treatment since no tax is payable on the income you receive, or any capital gains that you make, and there is also no need to declare any ISA income or capital gains on your tax return. They therefore provide tax efficient income and/or growth on your investment, the benefit of which can be compounded over time. See our Top 10 Tips for the 2017 ISA season for further help and tips on how to make the most from this important time of year. Please also note that with all of these investments, our experienced Investment Customer Services team is available on 0845 308 2525 to answer any questions you have.

How to apply

When you click for more information on any of the above plans you will be able to request a brochure pack which will be sent to you by post and email. This will include everything you need to invest, whether applying for an ISA, transferring existing Cash ISAs and/or Stocks & Shares ISAs or making on-ISA investments. Also note that these plans have different application deadlines, and may also close early so it is important to submit your application as soon as possible. Minimum investments and arrangement fees also apply.

Click here to compare more Investment ISAs »

 

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 investment. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.

Tax treatment of ISAs depends on your individual circumstances and is based on current legislation which are subject to change in the future. ISA transfer charges may also apply, please check with your provider before transferring an ISA.

These are structured investment plans which are not capital protected and are not covered by the Financial Services Compensation Scheme (FSCS) for default alone. There is a risk of losing some or all of your initial investment. 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 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.

NEW 5 year term – ISA fixed income best seller just got better

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With just over 5 weeks until the end of the tax year, now is the time to make sure you maximise your ISA allowance for the current 2016/17 tax year, before it is lost forever. So what better timing than for our best selling income plan to not only offer an enhancement to its product terms by reducing the fixed plan term from six years to five, but also to offer a Double ISA option whereby you can arrange the next tax year’s (2017/18) £20,000 ISA allowance as well. The appeal of a fixed income remains as strong as ever, whilst the ability to generate a high fixed income from capital remains limited. So here we take a quick look at the main features of the Investec FTSE 100 Enhanced Income Plan and what we expect will be a very popular plan this ISA season.

Income best seller

Whether you are working full-time or part-time and need to supplement your earnings, or retired and looking at ways to supplement your pension or savings income, the need for income is one of the most common demands put on our capital. Rather uniquely in the income investment space, this plan combines a high fixed income, with a fixed term and some degree of capital protection. These features have made it our best-selling income investment plan and a popular choice for our ISA investors.

High fixed income

Traditional investment funds normally pay a variable income dependent on the performance of the underlying asset, whereas this plan pays a fixed income regardless of the performance of the stock market. The current issue of the plan is paying 5.04% per year fixed, which means that the investor has the certainty of knowing from day one exactly how much they will receive. With longer term savings rates still at very low levels, the prospect of a high fixed income is likely to be attractive to a wide range of income seekers.

Monthly payments

Another popular feature is the monthly payment frequency since this is the most useful in terms of budgeting, especially when many UK equity income funds only offer quarterly payments. Therefore, not only does the investment provide a high level of fixed income, but it also pays this on a monthly basis, which could be an important feature when looking to supplement existing income. At 5.04% per year on offer from the latest issue, this equates to 0.42% paid each and every month for the entire term of the plan.

NEW 5 Year fixed term

The Enhanced Income Plan was first introduced in January 2013 and since its launch, the plan has always had a six year term. For this latest issue, Investec has been able to reduce the term to five years. This makes it the only income investment plan currently on offer with a five year term and although you do have the option to withdraw your money early, the plan is designed to be held for the full term and early withdrawal could result in you getting back less (or more) than you invested.

Some capital protection from a falling market

Unlike a traditional investment fund, the plan includes some capital protection from a falling stock market. This ‘conditional capital protection’ means that the return of your initial investment is conditional on the FTSE 100 Index not falling by more than 50% below its value at the start of the plan. If the FTSE stays above this 50% barrier throughout the plan term, you will receive a full return of your original investment when the plan ends.

Capital at risk

However, if the FSTE 100 Index does fall by more than 50% at any time during the plan term, and is also below its starting value at the end of the five year term, your initial investment is reduced by 1% for every 1% fall. Therefore this plan puts your capital at risk and you could lose some or all of your initial investment.

The use of averaging

When calculating the final level of the FTSE for the purposes of comparing it with its value at the start of the plan, the plan takes the average of the closing levels of the Index on each business day during the last 6 months of the plan term. The use of averaging can reduce the adverse effects of a falling market or sudden market falls, whilst it can also reduce the benefits of an increasing market or sudden increases in the market during the last six months of the plan.

Investment plans

This plan is a structured investment and so unlike investing in a fund where you would buy units at the prevailing price on the date of purchase, your initial capital is used to purchase securities issued by Investec Bank plc. These securities are structured in a way so that they aim to provide the fixed income and the return of capital as described above, and means that Investec Bank plc’s ability to meet their financial obligations becomes an important investment consideration. If the bank fails or becomes insolvent, this could affect both the payment of any future income, as well as the return of your original investment and you would not be covered by the Financial Services Compensation Scheme for default alone.

Investec credit rating

Fitch is one of the main global credit rating agencies and has awarded Investec Bank plc a credit rating of BBB with a stable outlook (awarded 3rd October 2016). The ‘BBB’ rating denotes a good credit quality and indicates that expectations of default risk are currently low and that Investec Bank plc’s capacity for payment of its financial commitments is considered to be adequate but adverse business or economic conditions are more likely to impair this capacity. The stable outlook indicates that the rating is not expected to change in the short to medium term, i.e. in the next 6 months to 2 years.

Investec Bank plc profile

Investec is an international specialist bank and asset manager with its main operations in the UK and South Africa. Established in 1974, they currently employ around 9,000 people and as at 31st March 2016, look after £121.7 billion of customer assets. They provide a range of financial products and services and specialise in a number of areas, particularly within the banking sector. Their banking operation looks after £24.0 billion of customer deposits and they are also a market leading provider of investment plans and structured deposits in the UK.

Double ISA option

The current issue of the plan includes Double ISA functionality which means you can invest your ISA allowance for both the current tax year (2016/17) and the next tax year (2017/18) at the same time, using a single application form. The ISA allowance for the current tax year is £15,240, and for the 2017/18 tax year (starting 6th April 2017) it increases to £20,000. This means you could invest up to £35,240 into the Enhanced Income Plan, achieving a tax free income of £1,766 per year (£148 per month). Please note that application deadlines apply.

Fair Investment view

Commenting on the plan, head of savings and investments at Fair Investment Company Oliver Roylance-Smith said: “Whilst longer term fixed rates on cash remain where they are, the pressure is clearly on to in terms of how we generate income from our capital, but also to think carefully before moving up the risk spectrum in the hunt for higher returns. Needless to say that the high level of fixed income and monthly payment frequency on offer from this plan are attractive features, whilst many fixed rate savers will be used to a fixed term which should also appeal to those investors who wish to plan around this.”

He continued: “By combining a fixed income with the criteria which need to be met before your capital is at risk, this plan allows potential investors to weigh up the risk versus reward prior to investing. In addition to paying a high fixed income rather than a variable income based on the performance of the stock market, and this plans sits very much on its own as an option for tax free income seekers.”

 

The plan is open for new ISA investments for the 2016/17 tax year (£15,240 allowance) and the 2017/18 tax year (£20,000 allowance), Cash ISA and Stocks & Shares ISA transfers, as well as non-ISA investments. The minimum investment is £3,000.

 

Click here for more information about the Investec FTSE 100 Enhanced Income Plan »

 

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 investment. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.

This investment does not include the same security of capital that is afforded to a deposit account. Your capital is at risk.

Tax treatment of ISAs depends on your individual circumstances and is based on current law which may be subject to change in the future. Always remember to check whether any charges apply before transferring an ISA.

This is a structured investment plan that is not capital protected and is not covered by the Financial Services Compensation Scheme (FSCS) for default alone. There is a risk of losing some or all of your initial investment. 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 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.