Archive for the ‘Investment’ Category

What does an interest rate rise mean for me?

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Inflation continues at its highest rate in four years, which also means that it continues at a level way above the Bank of England’s 2% target. Despite the Bank’s indication that they will raise interest rates as early as November, any such hike is likely to coincide with further increases to the cost of living, whilst there is no certainty whatsoever that it will also contribute towards an increase in the amount of interest paid on savings accounts. Here we review the affects that rising inflation and a potential interest rate increase may have.

Soaring Inflation

The figures released last month by the Office for National Statistics (ONS) showed August’s inflation rate reached 2.9%, which equals a four year high in the Consumer Price Index (CPI). To make matters worse, it has been reported by the Organisation For Economic Co-Operation and Development, that the UK has the highest inflation rate in the world’s top economies, including the US, Canada, France, Germany, Italy and Japan.

Not only do the inflation figures seem bleak, but many forecast them to get worse. The CPI predicts that the inflation figures will climb to at least 3% by the end of 2017. The Bank of England share the same view, as their Inflation Report in August suggested that inflation could reach 3% as early as the end of October. The figures for the 12 months to September are due on 17th October.

Interest Rate On The Rise?

In light of the recent increases to the headline rate of inflation, the Bank of England has spent some time considering the present position of the official base rate. The Bank of England’s Governor Mark Carney says that they are close to raising the base rate from 0.25% to 0.5% in November, provided “there is no sudden and unexpected deterioration in economic data”.

The Bank of England’s chief economist Mr Andrew Haldane also predicts that there will be a hike to the interest rate in November, stating that it would be a positive move to get interest rates back to normal “even if the new normal is different to the old normal”. Mr Haldane added that he sees this as “a sign that the economy is recovering”.

Although it may seem reassuring that the Bank of England feel confident enough to raise interest rates as early as November, there is an uncertainty as to how this will affect households in the UK. One of the major concerns for homeowners is how an interest hike will affect their mortgage payments.

Interest Rates Affecting Mortgages

Statistics released by the Bank of England state that 43% of homeowner mortgages are variable or tracker rate mortgages. Those on a tracker mortgage will see any interest rate increase passed directly on to them since these are usually pinned to the Bank of England’s base rate directly. Those on other types of variable rates may also have some or all of the increase added to their annual interest rate, depending on the product and the lender. As an example, on an average mortgage of £125,000 with a remaining term of 20 years, an increase of 0.25% would increase monthly payments by £15 to £665. That would amount to an extra £185 per year.

The remaining 57% of homeowners with a mortgage are on fixed rate mortgages and so will be unaffected by any interest rate rise, at least until their initial fixed rate period ends, at which point they will revert to their bank’s Standard Variable Rate and as such may well be directly affected by interest rate rises.

What This Could Mean For Savings Accounts

An interest hike of 0.25% could possibly provide a positive effect on the rates provided by savings accounts however the likelihood of this actually happening, or at least happening quickly, is very low indeed. The Bank’s base rate is only one factor that contributes towards the general level of savings rates in the UK, and since we have seen record low savings rate whilst the base rate was at 0.50%, an increase back to this level is very unlikely to create any material increase in the savings rates on offer.

What is perhaps more worrying is that even if the full 0.25% was added to every savings account in the market, not even the best five year fixed rate would offer a level of interest that is close to matching the current rate of inflation, let alone beat it.

Time For A Change Of Strategy For Savers?

Therefore, even if the interest hike goes ahead as predicted, we will still see increasing pressure on UK households as mortgage payments will increase, but there will still be no savings accounts that will be able to get anywhere near the current rate of inflation. What’s more, with inflation forecasted to increase further towards the end of the year, there appears to be only one outcome for the foreseeable future – savers will lose money in real terms. As such, it may be time for a change of strategy.

Savers who want to try and avoid losing money in real terms may wish to consider capital at risk investment plans. These products provide savers with the opportunity to receive competitive rates of interest that could potentially combat the effect of increasing inflation. The trade off for potentially higher returns is that your initial capital is at risk.

Capital At Risk Products

With a capital at risk investment plan the capital is not invested directly into the stock market, but the potential returns are generally linked to the performance of the FTSE 100 Index. This allows them to offer the opportunity to generate competitive rates of return, especially when compared to fixed term bonds.

An example of one of the investment plans is the FTSE Enhanced Income Plan. This plan provides a fixed monthly income, which is paid regardless of the performance of the stock market, however it is important to note that the return of the initial capital invested is dependent on what happens to the FTSE 100 Index.

Click here to find out more about the Enhanced Income Plan »

Risk Versus Reward

When considering a capital at risk investment plan, it is important to bear in mind that they only offer conditional protection to the capital initially invested. This means that your capital is returned unless the FTSE falls by more than a certain percentage, normally in the region of 40% to 50%. Therefore, when it comes to capital at risk products, there is always a question of risk versus reward.

The principle of risk versus reward means that the search for higher returns than those available from cash, usually leads to the need to consider putting your capital at risk. A good benchmark for assessing any such investment is to compare what you could get from a fixed rate deposit over a similar time frame, and then consider whether you are prepared to accept the level of risk to your capital in return for potentially higher levels of interest.

In Conclusion

The effect of the Bank of England’s interest rate increase along with the possibility of a further increase to inflation cannot be ignored. The hike in interest rates will result in more expensive mortgage payments, whilst savings rate are likely to continue to offer rates that fall well short of the rising cost of living.

Therefore, the trade off with savings accounts is that although they do provide you with capital protection, the interest paid remains behind inflation and so savers face losing money in real terms as a result. Investment plans may provide an opportunity for returns that combat inflation, however, it is important to fully understand all of the risks involved before considering putting your capital at risk.

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 fixed income investment mentioned 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 deposit accounts.

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.

Latest inflation, wage growth, interest rates and what this means for your savings

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The latest figures indicate that inflation bounced right back up to 2.9% in the month of August. This means that the headline rate of inflation continues at a level well above the Bank of England’s 2% target. What’s making matters worse is that earnings are not increasing anywhere near enough to keep pace, thereby increasing the financial pressures felt by many households in the UK. So it is vital to consider all of your options in light of the impact inflation and sluggish wage growth could have on your savings. We therefore take a closer look at what is happening in the UK and explore the possible ways to get the most from your savings.

Inflation Latest

UK inflation, as measured by the Consumer Price Index (CPI), dropped unexpectedly from 2.9% in May to 2.6% in June and remained at 2.6% for July. However, according to the latest figures from the Office of National Statistics (ONS), inflation returned to the heights of 2.9% in August.

The increase to 2.9% recorded in May and again in August 2017 is the highest inflation level since April 2012, the rate having slowly increased after a much welcome period of very low inflation during 2015. It may shock many savers to learn that inflation sat at just 0.9% a short 12 months ago.

Economists who witnessed inflation balloon by 2% in a year do not forecast a bright future for the next few months, as The National Institute of Economic and Social Research (NIESR), believe it will reach 3% by the end of 2017. This widely accepted pessimism was underpinned by the Bank of England’s (the Bank’s) Inflation Report in August, which predicted that inflation will likely peak at 3% as soon as October of this year.

The Future for Interest Rates

In line with the Bank of England’s recent summary, the Monetary Policy Committee (MPC) predictably voted by a majority of 6-2 to maintain interest rates at the record low of 0.25%. The recent decline in inflation may fill some with confidence that the Bank will raise interest rates soon. However, Charlie Bean, the former Bank of England’s deputy mused “it looks like the economy might be slowing, it seems like an odd time to increase interest rates”.

Upon review of the slow growth in the economy and the current rate of inflation, NIESR predicts that the Bank may increase interest rates in the first quarter of 2018, whilst Stuart Green of Santander Global Corporate Banking said that he “did not expect a rate hike to happen before 2019”. Either way, this does not fill us with a great amount of confidence.

Uncertainty

Some have suggested that the interest rate will not increase until after Brexit negotiations are finished and judging by the latest reports about the negotiations, it seems we could be waiting a long time before the Band of England decide to raise interest rates again.

Even though the question is not ‘if’ the Bank of England will increase interest rates but ‘when’, the rate is likely only to increase to 0.5%, and so the impact on savings rates is likely to be minimal in the short term, and only very gradual over time.

Lagging Wage Growth

With inflation and the question marks over whether to increase interest rates, UK households are enduring a prolonged period of sluggish wage growth. In the last four months wage growth has experienced the biggest drop since August 2014.

Unfortunately, the pressure on incomes is likely to continue as the latest forecast for pay rises sits at just 1%. Households all over the country are feeling the pinch and their wages just do not go as far as they used to, resulting in people spending less money. UK consumer spending is down for the third month in a row.

With less disposable cash, fewer people have been able to put money aside into their savings, and it is no secret that the less you put into savings, the less you will get from it. Ultimately this leads us to the same conclusion: it remains as important as ever to find the best returns on offer.

Savings Products

Fixed rate bonds have historically been the cornerstone product for many savers. However, the rates on offer from these accounts have probably changed more than any other in recent years. Continued reductions in the returns from fixed rate bonds have seen many savers suffering significant falls in the income received from their savings.

At the time of writing, there is not a single fixed rate bond that matches the rate of inflation, and as a result, many savers are losing money in real terms. What’s more, the best savings rates currently on offer from an instant access account provides around 1.25% AER, which sits well below the rate of inflation.

Do Your Homework

Despite the mounting pressure from potentially increasing inflation and sluggish wage growth, it is important to take the time to make the right decision for your financial circumstances. It may be appropriate to review the current amount of interest paid on all your savings and compare this with other savings accounts on the market.

Although the current crop of savings accounts do not come close to matching inflation, if you do not want to put your capital at risk then there are not many options available. However, making sure you have found the best deal for your savings has to be a top priority.

Compare Instant Access Accounts »

Compare Fixed Rate Bonds »


Taking on More Risk or Face Losing Money in Real Terms

The harsh reality in today’s economic landscape is if you do nothing, your money is losing value in real terms so long as the interest rate you receive is lower than inflation. One course of action to combat the effect of inflation is to consider a change of strategy.

The current inflationary environment, along with the slow wage growth and poor interest rates, means that savers may have to consider taking on more risk with some of their capital, in order to try and replicate previous interest rates and secure better returns from their capital.

Capital at Risk Products

One alternative for savers is to consider capital at risk investment plans. These products offer the opportunity to secure competitive returns to potentially beat inflation. Though the capital is not directly invested in the stock market, the potential returns are generally linked to the performance of the FTSE 100 and so offer the potential for competitive rates of return when compared to fixed term bonds.

One such investment plan uniquely offers a fixed monthly income, paid to you regardless of what happens to the stock market, with only the return of your initial capital dependent on the performance of the FTSE 100 index (rather than your income as well).

Risk Versus Reward

Of course, it is important to note that these products do not provide the capital invested with complete protection, and there is a risk of losing some or all of the initial investment. When it comes to capital at risk products there is always a question of risk versus reward.

The principle of risk versus reward means that the search for higher fixed returns usually leads to the need to consider putting your capital at risk. A good benchmark for assessing your fixed rate investment is to compare what you could get from a fixed rate deposit over a similar time frame, and then consider whether you are prepared to accept the level of risk to your capital in return for the higher fixed rate.

In Conclusion

However you decide to proceed, the impact of lagging wage growth, low savings rates and the possibility of soaring inflation cannot be ignored. Although savings accounts offer complete protection for your capital, it seems that the record low savings rates are here to stay for the foreseeable future. This could result in savers’ capital diminishing in value and losing money in real terms but before considering capital at risk products, you must make sure you fully understand all of the risks involved before proceeding.

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 fixed income investment mentioned 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 deposit accounts.

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.

Summer sizzlers: our hottest savings and investment ideas this summer

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Last updated: 29/08/20176

Whilst our sprinters surged forward to a compelling and action packed final weekend at the World Championships, the Bank of England on the other hand refused to take action and raise interest rates this month by keeping the base rate at a record low of 0.25%. With no indication whether the Bank of England will raise interest rates any time soon, this is a useful reminder for both savers and investors to regularly review their options. So to help you stay on top of what the current market has to offer, we bring you a selection of some of our most popular savings and investment deals available this summer.

Interest Rates

The economic landscape has not changed much since the Bank of England maintained its record low position on interest rates. The base rate of interest remains at 0.25%, and with it the vast majority of savings rates have continued to sit well below inflation. And the future not only looks bleak for savers, but investors too as the higher yielding FTSE 100 companies begin to show signs of strain, with factors such as currency feeding concerns that these dividends look increasingly unsustainable and so are likely to fall.

So both savers and investors face the same dilemma: how can I make the most out of my capital this summer?

Under the Spotlight

Unfortunately, for many savers longer term financial products no longer provide the 5%+ returns of yester-year, and this significant drop in headline savings rates has made it much harder to commit to tying up money for longer periods of time. As a result of this, we have seen a lot of activity this summer in the shorter term savings space, particularly into instant access and current accounts.

In addition, savers have seen interest rates stagnate and their savings being increasingly eroded with the impact of higher inflation. This has led to some having to consider taking on more risk with some of their capital, in the hope of achieving the levels of returns they have enjoyed in previous years. So we also cover some of our income and growth investment best sellers.

Current Accounts

Up until a few years ago, current accounts were infamous for their low interest rates, with most paying nothing at all on any monthly balances. However, in the last few years banks have placed an emphasis on improving their products, with some banks offering very competitive rates in order to win new customers.

Whilst the majority of these accounts place a cap on the amount that they are willing to pay interest on, the rates themselves are attractive. Therefore, if you’ve not switched for a while, it may be beneficial to compare these to your existing current account and find out how much more you could earn from your everyday cash.

The Santander 1|2|3

The Santander 1|2|3 current account provides the opportunity to receive 1.50% AER variable on your entire balance up to £20,000, a rate that is higher than the market leading instant access account (see below). It also has the added bonus of providing up to 3% cashback on various household bills including gas, electricity, water, broadband and even your Santander mortgage. This account has a monthly fee of £5, and their website allows you to compare the annual cost with the amount of interest you could earn plus any cashback on your current monthly bills.

Instant Access

An instant access account may be an attractive option for those who might need access to their cash at very short notice. These are savings accounts that pay interest and allow you to withdraw money whenever you need it. Generally, you decide how much or little you put into the account.

Ulster Bank eSavings

For those who wish to enjoy the freedom of banking on the go, along with a market leading interest rate, Ulster Bank’s eSavings may be one of the best options. The account can be opened completely online and then managed online, via their banking app or over the telephone. Ulster Bank eSavings account offers 1.25% AER variable, with no tiered interest and no minimum deposit.

According to the Bank of England, the average instant access account is currently paying only 0.15%*. Based on a balance of £50,000, the eSavings account would pay £625 per year compared to just £75 from the average account, which is an additional £550 per year.

RCI Bank Freedom Savings Account

RCI Bank Freedom Savings Account offers 1.20% AER variable gross to both new and existing customers for any amount up to £1,000,000. Although the account requires an initial payment of at least £100 within the first 30 days of opening, the account is free to use and there are no fees, penalties or tiered interest rates. RCI Bank is part of the Renault global banking group and so the first €100,000 is protected by the French deposit guarantee scheme (FGDR) rather than the UK FSCS.

Short Term Fixed Rate Bonds

For many savers, the majority of longer fixed term rate bonds simply do not offer enough of an uplift in rate to justify having your money tied up for extended periods of time. For many savers therefore, it may be beneficial to consider shorter term fix rate bonds.

Access Bank UK offer short term fixed rate bonds that provide competitive rates. In order to access these rates you must make a minimum deposit of £5,000 and each account has a maximum deposit of £500,000. Although you can only make one deposit per account, Access Bank UK doesn’t put a cap on the amount of accounts you can open at once. All deposits are eligible for FSCS protection.

1 Year Access Bank: offers an interest rate of 1.70% AER fixed for 1 year

2 Year Access Bank: provides a fixed interest rate of 1.90% AER over 2 years

Medium and Longer Term Fixed Rate Bonds

For savers willing to part with their money for a longer period of time to receive higher returns, Vanquis Bank has a selection of products offering very competitive interest rates. There is a minimum deposit of £1,000 and a maximum deposit of £250,000. No withdrawals are allowed over the course of the fixed term and all deposits are eligible for FSCS protection.

3 Year Vanquis Bank: offers an interest rate of 2.20% AER fixed

4 Year Vanquis Bank: offers an interest rate of 2.35% AER fixed

5 Year Vanquis Bank: offers an interest rate of 2.50% AER fixed

Capital At Risk

Capital at risk products allow investors to access potentially higher interest rates at the expense of accepting their capital will be at risk.

Risk versus Reward

The balance of the potential upside of higher returns versus the potential downside of losing some or all of your capital is generally known as risk versus reward. A good benchmark for assessing your investment is to compare what you could get from a fixed rate deposit over a similar timeframe, and then consider whether you are prepared to accept the level of risk to your capital in return for either a higher fixed rate, or the potential for a higher variable income.

Fixed Income Investment

Investec FTSE 100 Enhanced Income Plan

If you need to know exactly how much you will get paid, when and for how long, Investec’s FTSE 100 Enhanced Income Plan may be an option to consider. This plan offers a fixed interest rate of 4.35% per year for the fixed term of 5 years, and offers monthly income payments. The plan offers some capital protection but if the FTSE falls by more than 40% then you may lose some or all of your capital.

Higher Yield, Variable Income Investments

For those looking for higher income opportunities, the Meteor and Investec plans below offer up to 8% interest per annum, but rather than a fixed income, how much you receive is dependent on the performance of the FTSE 100 Index. Each plan also has the ability to mature early (or ‘kick out’) in the event that the FTSE has gone up by 5% or more from the second year onwards – measured each year and each quarter respectively. If the plan does not mature early, your capital will be at risk if the FTSE has fallen by more than 40% at the end of the plan term. If it has, you will lose some or all of your initial capital invested.

Meteor FTSE Monthly Income Plan: this plan has a maximum term of 10 years and offers a potential monthly income of 0.67% (equivalent to 8.04% annually).

Investec FTSE 100 Defensive Income Plan: this plan has a maximum term of 8 years and offers a potential quarterly payment of 2.0% (equivalent to 8.0% per year).

Defensive Growth Investment

The Investec Defensive Step Down Kick Out Plan is our most popular defensive investment and has the potential to return 6.25% for each year invested, provided the FTSE finishes at 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 reduces by 5% each year thereafter, down to 65% in the final year (i.e. if can fall up to 35% and you still receive your growth return).

If the FTSE is below the required level each year then no growth will be achieved and at the end of the plan your original capital will be returned. However, it is important to note that if at the end of the plan the FTSE 100 Index has fallen by more than 40% from its level 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.

Compare our summer’s most popular savings and investment ideas

Compare our current accounts »

Compare instant access accounts »

Compare fixed rate bonds »

Compare fixed income investments »

Compare higher yield, variable income plans »

Compare defensive growth investments »

 

* Source: Bank of England: Bank of England average quoted household interest rates for instant access savings, 31st July 2017

 

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

No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular plan. If you are at all unsure of the suitability of a particular product, both in respect of its objectives and its risk profile, you should seek professional advice.

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.

The investments in this article 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 due to the performance of the FTSE 100 Index. There is also 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.

FTSE income plans compared: offering up to 8% income

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Despite the latest fall to the headline rate of inflation, the rate is still well over the bank of England’s 2% target, and there is no guarantee that it will continue to decline over the next six months and beyond. The need for income is one of the most common demands put on our capital, and whilst there is not one traditional fixed rate savings account that offers an interest rate that is able to match inflation, income seekers are still faced with the toughest of challenges. To this end, we compare a selection of income investment plans, offering both the opportunity for a high level of income, as well as some capital protection against a falling stock market.

Is today’s inflation fool’s gold?

Inflation figures eased last month for the first time in 2017, dropping from 2.9% in May to 2.6% in June, according to the Office of National Statistics (ONS). However, this dip in inflation could be short lived, with a number of UK economic analysts predicting that inflation could reach upwards of 3% by the end of 2017. This could spell bad news for savers, as the current crop of fixed rate bonds only offer interest rates that fail to match today’s rate of inflation. Effectively, this means that many savers are losing money in real terms.

Income plans offer to counter inflation

The gap between interest rates and inflation has produced a greater demand for financial products that provide the opportunity to combat the effect of inflation on one’s capital. We therefore compare four investment plans which between them offer up to 8% income, the opportunity for regular income payments, as well as some capital protection against a falling stock market.

Features in common

The income plans under the spotlight here are the FTSE 100 Defensive Income Plan from Investec, the FTSE 100 Enhanced Income Plan from Investec, the FTSE Daily Accrual Income Kick Out Plan from Mariana and the FTSE Monthly Contingent Income Plan from Meteor.

All four plans have a number of features in common:

FTSE linked

Apart from the Enhanced Income Plan which pays a fixed income, the level of income you receive is dependent on the performance of the FTSE 100 Index (‘the Index’ or ‘the FTSE’), whilst the return of your initial capital for all of the plans is dependent on the FTSE.

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. Since the historical volatility is familiar to many investors, they are in a better position to consider the pros and cons of each plan within the context of the underlying investment and the potential income on offer.

Fixed term

All the plans have a fixed term, which varies depending on the investment. The FTSE 100 Defensive Income Plan requires an 8 year commitment, and the FTSE 100 Enhanced Income Plan has a term of 5 years. Both the FTSE Daily Accrual Income Kick Out Plan from Mariana and FTSE Monthly Contingent Income Plan from Meteor have a term of 10 years. The fixed term may well appeal to those who need to know exactly how long their capital will be invested for and who could benefit from planning around this.

Kick-out opportunity

All of the plans except the Enhanced Income Plan have the ability to mature early or ‘kick out’, which is also dependent on the FTSE. The Defensive Income Plan and the FTSE Monthly Contingent Income Plan will mature early in the event that the FTSE has gone up by 5% or more from the second year onwards – measured each year and each quarter respectively. Alternatively, the FTSE Daily Accrual Income Kick Out Plan has the ability to mature early after the first year and quarterly thereafter, in the event that the FTSE has gone up by 10%.

Therefore, should the FTSE go up by the required amount in the future, investors receive both a final income payment as well as a full return of their original capital, allowing further investment opportunities to be considered at that time.

Regular income payments

All four plans offer a regular payment frequency. The FTSE 100 Defensive Income Plan and FTSE Daily Accrual Income Kick Out Plan both offer quarterly income payments, the FTSE Monthly Contingent Income Plan offers monthly income payments and the FTSE 100 Enhanced Income Plan provides fixed monthly income payments. The mixture of monthly and quarterly income payments on offer provides options to a wide range of potential investors.

Up to 8.0% annual income

These plans are designed for investors looking for a high level of income, with a maximum annual income of between 4.35% and 8.04%. Where the four plans differ is the level that the FTSE has to be in order to achieve these favourable returns, and so an investor’s selection will heavily depend on what they think may happen to the FTSE in the coming years. Fortunately, the plans accommodate a number of different possibilities.

8.04% income if the FTSE does not fall more than 15%

Option 2 of the FTSE Monthly Contingent Income Plan from Meteor offers a monthly payment of 0.67% provided the FTSE, at the end of each month, has not fallen by more than 15% from its value at the start of the plan. Option 2 of the FTSE 100 Defensive Income Plan 1 from Investec offers a quarterly payment of 2% (equivalent to 8.0% per year) provided the FTSE, at the end of each quarter, has not fallen by 20% or more from its value at the start of the plan.

6.60 % income if the FTSE does not fall more than 25%

The FTSE Daily Accrual Income Kick Out Plan from Mariana offers up to 6.60% each year, with a 1.65% income payment made at the end of each quarter provided the FTSE 100 Index, on each business day during the quarter, closes at or above 75% of its value at the start of the plan. This means that the index can fall up to 25% throughout the quarter and the full income payment would still be made. If the FTSE falls more than 25% on any business day then income would not accrue for that day.

6.0 % income if the FTSE does not fall more than 30%

Option 1 of the FTSE Monthly Contingent Income Plan from Meteor offers a monthly payment of 0.5% provided the FTSE, at the end of each month, has not fallen by more than 30% from its value at the start of the plan.

6.0 % income if the FTSE does not fall more than 40%

Option 1 of the FTSE 100 Defensive Income Plan from Investec offers quarterly payments of 1.5% provided the FTSE, at the end of each quarter, has not fallen by 40% or more below its value at the start of the plan.

4.35% income regardless of the performance of the FTSE

The FTSE 100 Enhanced Income Plan offers a monthly payment of 0.3625%, paid to you regardless of the performance of the Index. Although this plans offers the lowest headline yield, it is the only one to offer a fixed income payment each and every month plan for the full fixed term.

Provisional capital protection

One of the unique features of this type of investment plan is that each contains some form of conditional capital protection – this means the FTSE has to fall by more than a fixed percentage (known prior to investing) before your capital is at risk. For all four plans, the percentage is 40% below its value at the start of the plan, which is measured at the end of the investment term only. If it does fall below this level, your capital is reduced by 1% for each 1% fall, so you could lose some or all of your initial investment.

Fair Investment conclusion

Commenting on the current range of FTSE based income plans, head of savings and investments at Fair Investment Company, Oliver Roylance-Smith said: “The potential to achieve an income that beats inflation (after tax and charges), and which leaves the value of your initial investment untouched, has to be a goal for many an income investor, otherwise your capital is losing money in real terms.”

He continued: “As inflation continues to put so much pressure on both savers and investors alike, the ability to achieve up to 8% income whilst offering some capital protection is likely to appeal to wide range of investors, whilst the fixed income on offer from the Enhanced Income Plan continues to make it our best selling income plan.”

 

Click here for more information on Investec’s FTSE 100 Defensive Income Plan »

Click here for more information on Investec’s FTSE 100 Enhanced Income Plan »

Click here for more information on Meteor’s FTSE Monthly Contingent Income Plan »

Click here for more information on Mariana’s FTSE Daily Accrual Income 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 legislation which are subject to change in the future. ISA transfer charges may apply, please check with your provider.

These are structured investment plans that are not capital protected and are not covered by the Financial Services Compensation Scheme (FSCS) for default alone. Income payments are not guaranteed and 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.

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.

Top 10 Tips for 2017 ISA season

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With just over 7 weeks until the end of the tax year, now is the time to consider making good use of your ISA allowance if you have not done so already. Considering ways to shelter your hard earned cash from the tax man should be a top priority, and so this ISA season period between now and the end of the tax year is an important time for savers and investors.

To help you act and act fast, our head of savings and investments, Oliver Roylance-Smith, has put together his Top 10 tips for the 2017 ISA season, so there can be no excuse for missing out…

Tip 1 – Don’t miss any deadlines

Before you do anything else ISA-related, make sure you remember the most important end of tax year deadline which is midnight on 5th April. This is the main deadline to remember since it marks the latest date for using your ISA allowance within the current 2016/17 tax year. Remember that you cannot backdate your ISA allowance once this deadline has passed – if you don’t use it, you lose it.

Also look out for other deadlines which may apply. Many ISA providers will need your application before this date, whilst some ISA plans have an earlier deadline for ISA transfers. Some may also offer limited funding and may close early if they become oversubscribed.

Tip 2 – Know your limits…

At the start of each financial year, HMRC set a limit on the amount each individual can put into an ISA over the course of the next twelve months, between 6th April and the following 5th April. This is known as the ISA allowance. The ISA allowance for the current tax year (2016/17) stands at £15,240.

Tip 3 – Maximise your ISA allowance

You can put your entire ISA allowance into a Cash ISA, a Stocks & Shares ISA (Investment ISA) or the new Innovative Finance ISA, or any combination thereof, i.e. if you decide to use some of the allowance in one type of ISA, you can also put any remaining balance into either or both of the other types, provided the combined total is no more than the £15,240 ISA allowance. Also remember that this allowance is per person (over the age of 16 for a Cash ISA, and age 18 for an Investment ISA and Innovative Finance ISA), so a couple can invest up to £30,480 in total this tax year.

Tip 4 – Use next year’s £20,000

The ISA allowance will increase to £20,000 from 6th April 2017, so if you want to go one step better than making sure you beat this tax year’s deadline, why not sort out the following year’s ISA allowance as well? Investec Bank for example have Double ISA functionality on all of their current plans, which means you can apply for both 2016/17 and 2017/18 tax years through one application. So why not start as you mean to go on and get organised right at the start of the new tax year? – with a combined ISA allowance of up to £35,240 over the two tax years (that’s £70,480 per couple), this means one less thing to worry about as well as getting the beneficial tax treatment for the full tax year.

Tip 5 – Consider the impact of current ISA savings rates

Despite the generous increases to the overall ISA allowance in recent years, it is not all good news, especially for cash savers. This is because the increases have coincided with some of the lowest Cash ISA savings rates on record, with none paying more than the current rate of inflation (1.6%, as measured by the Consumer Price Index). Therefore many Cash ISA savers are either losing money in real terms, or having to consider taking on more risk with their capital. As a consequence, more and more ISA savers are looking towards the Stocks & Shares ISA, which has seen record subscription numbers in the last couple of years. Please note that Stocks & Shares ISAs put your capital at risk and should generally be considered as a longer term option.

Tip 6 – Remember the Personal Savings Allowance

Remember that since the start of the current tax year (6th April 2016), most people receive a personal tax free allowance for interest earnings on savings. For basic rate taxpayers, this is set at £1,000 each tax year, whilst higher rate taxpayers get an allowance of £500. Since non-Cash ISA savings rates are normally much higher than Cash ISA rates, and the interest earned by many savers now falls within the Personal Savings Allowance, this has also contributed to higher numbers using their ISA allowance for investments in the hunt for higher returns.

Tip 7 – Think about tax free income

Although the personal savings allowance has resulted in many savers not having to worry as much about the impact of tax on their overall returns, there are still other considerations and those who have existing ISAs, are higher (or additional) rate tax payers, or who might receive high levels of income from their capital in the future, should all think about using ISAs to receive tax free income. Not only does this income not need to be declared on a tax return, but income from ISAs is not included in the personal savings allowance.

Tip 8 – Review existing ISAs

It’s not in your ISA provider’s best interest to offer you the best deal year after year, and don’t rely on them making sure you are aware that your rate has gone down or that a better account or alternative investment is available because it probably won’t happen, even if it is available from the same provider. Interest rates have been in steady decline, especially for existing customers, and once you’ve deposited your hard earned cash, your ISA provider knows from experience that you’re unlikely to get round to switching providers even if your rate ceases to be competitive. Don’t be that person! It’s down to you to review your existing ISAs.

Tip 9 – Take advantage of ISA transfers

Many of us already have existing ISAs, however, like so many other savers and investors, you may find that your ISA is no longer paying a competitive rate or your investments are underperforming – this is where the ISA transfer can help. You can transfer all previous ISA holdings and most allow you to do this without charge, although don’t forget to check whether there are penalties from your existing provider. Remember that now you can transfer between Cash ISAs and Stocks & Shares ISAs without any restriction, which means that you can choose to keep all of your ISA savings and/or your investments in one place.

Tip 10 – Understand what your ISA could achieve

When considering why to try and maximise your ISA allowance, apart from sheltering your income or growth from the tax man, it is important to understand how much you could achieve over time. For example, if you had invested the maximum into an Investment ISA since the 1999/2000 tax year, and it had grown at 5% each year, you would now have a lump sum of over £250,000. This is a significant amount, with no additional liability to income or capital gains tax. Please note that the tax efficiency of ISAs is based on current tax law which is subject to change in the future.

Start a new ISA or transfer your current ISA now

The range of ISA options to choose from is significant and changing day by day in the run up to 5th April. As the end of the tax year approaches, Cash ISA providers in particular will try and persuade you that their offering is the best destination for your hard-earned money, despite this being a period of record low savings. Our range of Cash ISAs, Investment ISAs and Innovative Finance ISAs is constantly being updated and many of the savings accounts and investments are available as new ISAs and accept ISA transfers. Some also have Double ISA functionality, so you can use next year’s ISA allowance early. So start as you mean to go on, review your options carefully and make sure you make the most out of the tax-efficient returns on offer by taking action now…

 

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Please note that this information is based on current law and practice which is subject to change.

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 legislation which are subject to change in the future. ISA transfer charges may apply, please check with your provider.

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.