Archive for the ‘Savings’ Category

Inflation falls but what does this really mean for savers?

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Figures launched today reveal that UK inflation fell to 2.6% from its five year high of 2.9% the previous month. However, despite this fall, there is gathering consensus that it could rise again in the second half of this year. This latest level also means that inflation is still well above the 2% target set by the Bank of England, and so it remains as important as ever to review your options in light of the impact inflation can have on your hard earned cash.  We take a closer look at what the latest rate of inflation really means when making decisions around our savings and investments.

Inflation latest

UK inflation, as measured by the Consumer Price Index (CPI), dropped unexpectedly today to 2.6% according to the latest figures from the Office of National Statistics (ONS). This represents a fall of 0.3% from its previous five year high of 2.9% in the previous month – its highest level since April 2012. The rate has climbed gradually following a period of very low inflation during 2015. The latest figures provided by the CPI show there has been an increase of almost 2% over the last 12 months.

And yet despite this latest reduction, the forecast for inflation for the remainder of the year does not look bright either. Paul Hollingsworth, a UK economist at Capital Economics, explains that “it takes time for rises in producer prices to feed through to prices in the shops … we think that CPI inflation will rise a bit further in the second half of the year, peaking at about 3.2% in the fourth quarter.” Though Mr Hollingsworth accepts that inflation is likely to drop back down in 2018, the UK will feel the pinch in the second half of 2017.

The future for interest rates

In June the Bank of England predictably decided to keep interest rates at their record low of 0.25%. However, what was not so predictable was the fact that three Bank of England policymakers wanted to raise interest rates. In addition, Andy Haldane, Chief Economist and the Executive Director of Monetary Analysis and Statistics at the Bank of England, reportedly proposed that the Bank should increase rates “at a gradual pace and to a limited extent”. So although interest rates remain low, the deeper split with the Bank of England’s committee illustrates a potential rise in the near future and perhaps sooner than you might think. Whether the latest fall to the headline rate of inflation will dampen this sentiment we will have to wait and see.

Pressures mounting on households

Though, for right now, the status quo remains the same. The lowest interest rate on record coupled with relatively high levels of inflation when taking a five year view, is a combination which will make life difficult for the average UK household. Despite recent reports from the ONS that unemployment fell, wage growth is slipping to 1.8 per cent. Weak wage growth and high inflation rates means less disposable income for households, making it harder for the average UK household to make ends meet, let alone put enough money into their savings.

Impact on saving

Higher headline rates of inflation are always bad news for savers as the value of the money they hold in their accounts is eroded more quickly. The knock-on effect of higher inflation is that savings accounts will not pay enough interest to beat inflation, and this is already the case.

Whatever happens to future interest rates, with inflation currently running at 2.6%, basic rate taxpayers with the full Personal Savings Allowance available need to achieve at least this rate to match inflation, whilst taxpayers without the Personal Savings Allowance need to achieve at least 3.25% and higher rate taxpayers considerably more. A review of the savings rates we currently have on offer shows rates of around 1.25% AER on instant access, 1.70% AER and 1.90% AER for one and two year fixed rates respectively, around 2.20% AER for a three year fixed rate and 2.42% AER if you fix for five years.

This means there are no cash savings products currently on offer that get anywhere close to the rate of inflation, ensuring that with deposit based savings, you are losing money in real terms.

Always compare

Regardless of what inflationary pressure there is, the best course of action is to check the amount of interest paid on all of your savings and then take the time to compare your current savings accounts with what is currently available in the market. Even though savings rates do not currently stack up against inflation, if you want to maintain full capital protection with your money there are limited alternative options out there. But making sure the cash deals you do have are competitive has to be priority number one.

Lose money in real terms versus taking on more risk

The risk of doing nothing is that your money is losing value in real terms for the entire time that the interest rate paid is less than inflation. Due to the amount that savers have to earn to match inflation, it may be time for a change of strategy in relation to your savings. But whilst the combination of low savings rates and the potential for continuing high inflation may force more of us to consider investing, this raises the difficult question of taking on more risk in an attempt to replicate historical levels of income enjoyed from cash based products.

Beating inflation by putting your capital at risk

By putting your capital at risk you open up opportunities for potentially higher returns which in turn could combat any future rises to inflation. Although most investments only offer a variable income, the fixed monthly income available from Investec’s FTSE 100 Enhanced Income Plan has been a very popular choice with our investors. The current issue pays 0.3625% per month (equivalent to 4.35% per year) and has a five year fixed term. This plan is available as an ISA and also accepts ISA transfers and non-ISA investments. The plan also includes conditional capital protection, so your capital is returned at the end of the fixed term unless the FTSE 100 Index falls by more than 40%.

Risk versus reward

It is important to remember that unlike deposit based savings products, this plan puts your capital at risk and if the FTSE does fall more than 40%, you could lose some or all of your initial capital. Also, since it is an investment rather than a deposit-based plan, your initial capital is not covered by the Financial Services Compensation Scheme should the bank default.

In conclusion …

Whatever route you decide to take, there is no escaping the impact of continuing low savings rates and falling income levels, all to be compounded by the prospect of inflation continuing well above the level of interest paid on savings accounts. It seems the trade off for capital security for some time to come will be low rates of interest and in all likelihood a negative return in real terms, whilst for those considering using some of their savings to invest, 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 for more information on the Investec Enhanced Income Plan »

Click here to visit our Income Section »

 

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 or any shares listed within the Index is not a guide to their future performance. This investment does not include the same security of capital which is afforded to a deposit account.    

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.

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

Savings Focus: Ulster Bank launches market leading instant access

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Ulster Bank’s latest release of their eSavings instant access account has made a firm statement to the savings market in the UK – to be market leading. Whilst RCI Bank has long been at the forefront of instant access rates with their popular Freedom Savings Account, Ulster Bank looks set to give them a run for their money, so here we take a closer look at what this simple and yet highly competitive account has to offer.

Market leading rate: 1.25% AER Variable

The most impressive feature of the account is the rate. Ulster Bank’s eSavings account is currently offering 1.25% AER variable gross, which is market leading for an instant access account in the UK.

Earning you more

According to the Bank of England*, the average instant access account is currently paying only 0.15%, and so there are hundreds of thousands of savers out there who could benefit from the rate currently on offer from the eSavings account. Assuming a balance of £50,000, this account would pay £625 per year compared to just £75 from the average account – that’s an additional £550 per year.

One simple rate

Unlike other accounts, there are no bonus periods or tiered interest rates, just one simple market leading rate across all of your balance. Interest is calculated daily, and paid on the last business day of the month.

No minimum – start saving from just £1

There is no minimum deposit required to open the account, so you start saving from just £1. Although there is a maximum balance, this is set at £5m so should not affect many.

Instant access

The eSavings account is an instant access savings account which means that you can withdraw money at any time and no notice is required. You can withdraw money by online transfer, via the mobile app or through telephone banking. There are daily withdrawal limits in place, which are currently £20,000 per working day for payments made via online banking, and £10,000 per working day via telephone banking. You are able to transfer more than your daily limit by sending your instruction in writing.

Managing your account

You can manage your account online through Anytime Internet Banking, by telephone banking or via the mobile app. You must register for the Anytime Internet Banking service to manage your account via online, telephone or on the mobile app.

Available to all

Provided you are aged 18 or over and a UK resident, this account is open to all savers, both new and existing customer of Ulster Bank.

Easy to apply

The account has to be opened online but only takes a few minutes to apply.

Financial Services Compensation Scheme

Ulster Bank Limited is part of the Royal Bank of Scotland group and is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority. As a UK regulated bank, it is also a member of the Financial Services Compensation Scheme (FSCS). The Scheme can pay compensation to customers if they are eligible and Ulster Bank Limited is unable to pay claims against it, for example if it ceases to trade or becomes insolvent. The scheme will cover up to £85,000 per person for money held on deposit. For further information about this protection you can read ‘How FSCS protects your money’ or you can visit the FSCS website.

 

Click here to find out more about the Ulster Bank instant access account » 

 

* Bank of England average quoted household interest rates for instant access savings, 7th June 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.

Gross rate is the interest rate you are paid without the deduction of income tax. The account does not deduct tax from the interest paid. The tax treatment may be subject to change in the future and depends on your individual circumstances.

Current accounts that give you more: cashback, interest and other benefits

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Despite us using our current account more than any other type of account, it is usually the one we review the least in terms of comparing it with the latest market offerings. With interest rates as high as 3.0% on offer, various types of cashback arrangements, as well as other financial incentives, it is quite possible that if you’ve had your current account for some time, there is a better deal on offer.

What’s more, with current account switches offering guarantees to be completed within seven working days with your new bank taking care of everything for you, it is completely different to several years ago when many were put off by the amount of work involved and keeping on top of it all. With this in mind, here we take a look at three current accounts which are proving most popular with those either making the switch, or choosing to take out a second account.

Inflation and savings rates – nowhere to hide

The rate of inflation as measured by the Consumer Price Index, rose to 2.90% in May, its highest level for nearly four years. However, four years ago you could generate this level of interest from a fixed rate bond if you were prepared to tie in for the long term, whereas now the best long term deals are way below this at around 2.40% AER. In addition, according to the Bank of England the average easy access account now pays just 0.15% – that’s a fall of 65% in just one year. This makes the latest inflationary rises a serious cause for concern and means there really is nowhere to hide for savers.

Banks offering incentives

Although historically current accounts have been well known for offering paltry rates of interest, this has changed significantly in the last few years as some of the high street banks started to see the value in offering incentives in order to get new customers. What this means today is that, provided you are usually in credit with your account, you can now be rewarded with very competitive interest rates, healthy levels of cashback on your spending, as well as a range of other benefits.

Could you get more from your current account?

Many existing current accounts pay no interest at all, so with up to 3.0% AER available it is always worth comparing what the market has to offer. Staying put simply because you have all of your direct debits set up is no longer a valid reason, especially since the introduction of the current account switch guarantee (see below for further details).

Three of our most popular current accounts

Each new current account available has its own features and criteria, with different interest rates being paid for different levels of account balance depending on the offering. Most usually require a minimum amount to be paid in each month to qualify for the headline interest rate, as well as the setting up of a minimum number of direct debits. Here we take a look at three of our most popular.

TSB: 3.0% on balances up to £1,500 plus up to £120 cashback per year

TSB’s Classic Plus account offers 3.0% AER (variable) interest, paid monthly on balances up to £1,500. No interest is paid on balances above this amount and although the 3.0% is variable, it is paid ongoing (i.e. is does not drop down after a set period of time). In order to receive this rate you must pay in a minimum of £500 per month, as well as register for internet banking, paperless statements and paperless correspondence. The account also offers £5 cashback every month* just for having two active direct debits per month, with a further £5 cashback every month if you spend with your debit card at least 20 times a month. That’s up to £120 cashback each year, all with no monthly account fee.   Find out more »

Santander: 1.50% on balances up to £20,000 plus up to 3% cashback

The Santander 1|2|3 account combines a competitive rate of interest on a large cash balance, with the opportunity to receive cashback on a number of your main household bills. The account pays 1.50% AER variable on your entire balance up to £20,000, whilst you can get up to 3% cashback on selected household bills (e.g. 1% on council tax and water bills, 2% on gas and electricity, and 3% on broadband and mobile phone bills). You must pay in at least £500 per month and have at least two active direct debits to receive interest and cashback. There is a £5 monthly account fee.   Find out more »

First Direct: £100 switch incentive plus £250 interest free overdraft

First Direct is offering £100 if you switch your everyday banking to them using the current account switch service (see below) and pay in at least £1,000 within three months of opening the account. You also benefit from a £250 interest-free overdraft, have access to their award winning UK-based customer service team, and can pay in cash and cheques at HSBC and Post Office branches. No interest is paid on balances in credit with this account. There is no cost for the first six months and although there is normally a £10 monthly account fee, there are several was of avoiding this, for example by paying at least £1,000 into your account every month or maintaining an average monthly balance of £1,000.   Find out more »

7-Day Switch Guarantee

Apart from the low interest rates generally on offer, one of the main reasons many of us have stayed with our current account provider far longer than other type of account, is the fear that something would go wrong with the direct debits associated with our account. However, since the introduction of the current account switch service in September 2013, the whole process of switching banks is easier and will now be completed in seven working days – the 7-Day Switch.

Over 40 banks have signed up to the service (including TSB, Santander and First Direct), which makes sure that all outgoing payments, such as standing orders and direct debits, will be transferred across to your new bank on your behalf. The service also guarantees that should any incoming payments be sent to your old account in error, these will be automatically redirected to your new account for up to 36 months after your switch date. This means the banks do all the hard work for you, making switching smoother and faster. Over 3 million account switches have been processed since its launch.

To switch or not to switch?

The 7-Day Switch therefore offers peace of mind to anyone considering a switch from their current account provider. However, you don’t necessarily have to switch your current account – if maximising interest is your top priority, you could also consider taking one of these accounts out in addition to your existing current account, provided you still meet any of the account qualifying criteria such as paying in the minimum amount required each month or set up a certain number of direct debits.

FSCS Protected

Also remember that not only do all of the accounts featured offer full banking services and have VISA debit cards available, they are offered by high street banks and so eligible deposits are covered by the Financial Services Compensation Scheme up to the deposit compensation limit of £85,000 per person, per authorised firm.

Always compare

Do not let the thought of moving your current account put you off. The competition for current accounts has rocketed in the last couple of years and millions have already made the move to a new account. So as major banks and building societies compete for your custom, always remember to compare the interest rate and any other benefits your current account offers with the best market has to offer – you may be surprised at just how much difference it could make…

 

Click here for more information on TSB’s Current Plus account »

Click here for more information on Santander’s 1|2|3 account »

Click here for more information on First Direct’s 1st account »

Click here to compare current accounts »

 

* Offer ends 30 June 2018.

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

Gross is the interest you will receive before tax is deducted.

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.

Savings Focus: Masthaven Bank launches with some market leading fixed rate bonds

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Last updated: 14/02/2017

Masthaven Bank is the latest bank to launch a range of fixed term deposits to the UK retail market and based on its initial range of products, looks set to be a real challenger, even amongst the challenger banks. So, if you have a minimum of £500 that you can tie up for at least 6 months, and you want to take advantage of some of the highest savings rates on the market, their first tranche of products is certainly worth reviewing. Here we take a closer look at what the bank has to offer savers.

Lending history

Masthaven is a brand new bank and the first new bank to be awarded a banking licence in 2016. However, they are not completely new to lending. Since 2004, they have been providing a flexible and personalised approach to lending in the specialist areas of bridging loans and secured lending (second charge mortgages), areas in which they remain one of the most competitive propositions in the market.

UK based fixed rate savings accounts

Headquartered in London, and with a knowledgeable and experienced team of savings specialists based in their UK contact centre, they have just launched their retail banking arm with a highly competitive range of fixed term and flexible term fixed rate savings accounts.

Masthaven Bank Fixed Term Bonds – up to 2.06% AER

Masthaven Bank’s fixed rate savings accounts are aimed at savers who are able to tie their money up for a fixed period, and are also looking for a fixed and regular rate of interest. They have four fixed term products, with terms ranging from 1 year to five years, and as you would expect, the rate of interest available increases with the length of term you choose: their 1 Year Fixed Term Bond pays 1.25% AER, whilst their 5 Year Fixed Term Bond offers a market leading 2.06% AER.

Summary of Fixed Term Bond rates

A summary of Masthaven’s fixed term bond rates is as follows:

  • 1 Year Fixed Term Bond:     1.25% AER
  • 2 Year Fixed Term Bond:     1.58% AER
  • 3 Year Fixed Term Bond:     1.76% AER
  • 5 Year Fixed Term Bond:     2.06% AER

Click here for more information on the Masthaven Fixed Term Bonds »

Masthaven Flexible Term Saver – create your savings account

Masthaven also offers the option to choose your own term, with their Flexible Term Saver. Terms can be selected in whole months, ranging anywhere between 6 months and 60 months, with rates between 0.60% AER and 1.96% AER respectively. This means you can tailor to the month the exact term you want, whilst also benefitting from a top rate of interest which is fixed for term of the account.

The Flexible Term Saver is an innovative account designed for customers who may be saving for a key event, such as a holiday of a lifetime, a wedding, university fees or a deposit for a house. The flexibility around term choice allows you to create a savings account based on your own needs and timeframes, so that you take advantage of a fixed interest rate but without having to sacrifice a competitive rate of return. Example interest rates are as follows:

  • 15 Month Flexible Term Saver:     1.33% AER
  • 18 Month Flexible Term Saver:     1.42% AER
  • 30 Month Flexible Term Saver:     1.67% AER
  • 48 Month Flexible Term Saver:     1.91% AER

See rates and find out more about the Masthaven Bank Flexible Term Saver »

How much can you save?

All Masthaven savings accounts have a minimum balance of £500 and a maximum balance of £250,000 per account. You may have as many savings accounts with them as you want at any one time, however there is a maximum total balance of £1,000,000 that can be held across all of their savings accounts. Any funds held jointly will count towards each of your own individual limits.

Interest

Interest will be calculated from the day on which you make your deposit and is calculated daily based on the funds held in your account. You can have interest paid either monthly or annually and importantly, interest can either be paid into an account of your choice, or added to the balance of your fixed rate bond account, in which case you can benefit from compound interest. Interest will be paid to you gross, without tax deducted.

Account set up

Each account can be set up as a single or joint account. Accounts are opened online and access to account information is online or via telephone. As with most fixed term accounts, no early withdrawals are permitted.

Financial Services Compensation Scheme

Masthaven Bank is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority. As a UK regulated bank your deposits are protected up to £75,000 by the Financial Services Compensation Scheme (‘FSCS’). For further information about this protection you can read ‘How FSCS protects your money’ or you can visit the FSCS website.

The UK’s only owner-managed bank

Masthaven Bank was awarded the first 2016 retail banking licence back in April, and launched officially on 28th November with the suite of fixed term savings accounts detailed above. It aims to offer an alternative to the one-size-fits-all approach of many conventional banks, and is the UK’s only owner-managed challenger bank with a partnership model which at launch sees 80% of employees already shareholders in the business.

The Board of Directors is as follows:

  • The Chairman is Peter Harrison, ex-CEO of the UK Financial Services Practice at KPMG, Chairman of the Audit Committee of a FTSE 250 Company and ex-Chair of the Audit Committee for CIT Bank Ltd.
  • Andrew Bloom is CEO. After working for KPMG and Strand Hanson he founded Masthaven Finance in 2004. Andrew has built Masthaven into an award-winning mortgage, development finance and bridging finance provider.
  • Managing Director is Jon Hall who joined the business in December 2014. Previously Mr Hall was Chief Executive of Saffron Building Society where he grew the mutual’s ranking from 31st to 13th largest in the UK and the largest in Eastern England.
  • Three Non-Executive Directors join Masthaven’s Board: Anne Gunther, previously Chief Executive of Norwich & Peterborough Building Society and Standard Life Bank; Ashley Machin, who most recently was Chief Digital Officer at TSB Bank and Michael Baker, FD of Joint Ventures at the William Pears Group.

Access to this expert leadership team along with a strong team of support staff approaching 100 in number, combined with straightforward digital services, means Masthaven will offer what it calls human digital banking.

Click here to compare all Masthaven Bank fixed rate savings accounts »

 

Please note that Masthaven Bank fixed rate bonds are fixed term products which means you cannot withdraw your funds or close your account until the end of the agreed term.

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

Fixed rate bond holders face significant falls: our roundup of the latest fixed rate options

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Last updated: 17/01/2017

For those bond holders with maturing accounts, many are facing significant falls in the level of returns on offer when comparing their maturing account with the current crop of fixed term deposits on offer, especially those coming out of four or five year fixed rate bonds. And yet despite this low interest rate environment, fixed rate bonds continue to play an important role for many savers. With this in mind, we give you a roundup of our latest fixed rate bond offers, as well as take a look at some of our most popular alternatives.

Fixed rate bonds a popular choice

With interest rates looking set to continue at their record lows for some time to come, and whilst top instant access accounts only offer around 1.0% AER, savers looking for the certainty of knowing exactly how much they will receive, when and for how long, still look towards the fixed rate bond which remains a popular choice for those wanting to combine a fixed return with full capital protection.

Short term: up to 2 years

Fixed rate bonds

For those looking at the shortest fixed terms, Habib Bank offer a 6 Month Fixed Rate Deposit paying 0.80% AER, whilst new entrants Zenith Bank and Masthaven Bank offer 1.30% AER and 1.35% AER respectively if you can tie your money up for a year with their 1 Year Fixed Term Deposit. Minimum deposits start as low as £500 and your deposits are eligible for the Financial Services Compensation Scheme (FSCS). Interest is paid at maturity and as is standard with most fixed term deposits, no withdrawals are permitted during the term of the bond. Zenith Bank also offers a top rate of 1.52% AER if you fix for 2 years with their 2 Year Fixed Term Deposit account, with deposits available from £1,000, whilst Masthaven’s 2 Year Fixed Term Bond is slightly more competitive at 1.53% AER with a £500 minimum balance.

Fixed rate Cash ISAs

Bank of Cyprus UK offer market leading rates in this category, with their 1 Year Fixed Rate Cash ISA paying 1.05%, and marginally higher at 1.10% AER if you want to fix for 2 years, both with a low minimum deposit of just £500. These accounts are available to anyone aged 16 or over and interest is paid annually into your Cash ISA. ISA transfers are permitted and eligible deposits are covered by the UK FSCS. Aldermore Bank offers a market leading 1.20% AER on their 2 Year Fixed Rate Cash ISA but the minimum is slightly higher at £1,000. Aldermore Bank is the five time winner of the Consumer Moneyfacts ISA Provider of the Year Award (2011-2015).

Medium term: 3 to 4 years

Fixed rate bonds

In the three to four year space, our top deal comes from the new kid on the block, Masthaven Bank, and their 3 Year Fixed Term Deposit, currently paying 1.67% AER. The minimum deposit is £500 and interest can be paid monthly or annually. For those looking specifically for monthly interest, United Bank UK’s 3 Year Fixed Term Deposit pays a slightly lower rate of 1.55% AER, but also offers a monthly interest option, in addition to having it paid annually or at maturity. No withdrawals are permitted from these accounts.

Leading our tables over 4 years is Vanquis Bank offering 1.85% AER and Masthaven Bank offering 1.84% AER with their 4 Year Fixed Term Bond, for those with between £500 and £250,000 to deposit. Both accounts have annual or monthly interest options, but no withdrawals are permitted during the term. Accounts can be opened in sole or joint names.

Fixed rate Cash ISAs

Bank of Cyprus UK continues to be very competitive in the fixed rate Cash ISA market with their 3 Year Fixed Rate Cash ISA, currently paying 1.20% AER and with a respectable minimum deposit of just £500. Aldermore are offering a higher rate of 1.25% AER fixed over 3 years with their 3 Year Fixed Rate Cash ISA whilst both of these accounts allow you to transfer in existing ISAs from other providers, and can be set up easily online.

Longer term: 5 years+

Fixed rate bonds

Although the highest rates are still rewarded with higher savings rates in return for locking your money away for longer, the interest rate gap between short term and longer term is also at record lows. For those prepared to commit their savings for five years, Vanquis Bank’s 5 Year Fixed Rate Bond is paying 2.00% AER with a minimum deposit is £1,000 whilst Masthaven Bank’s 2.01% AER is currently market leading and interest can be paid monthly or annually.

Fixed rate bond holders facing significant falls

Just over a year ago we were talking about savings rates of around 2.10% for a 1 year fixed rate, 2.35% for a 2 year fixed whilst a 3 year would get you 2.70% AER fixed. Our best rates above will earn you 1.35%, 1.53% and 1.61% AER respectively, equivalent to reductions of between 35% and 40%. And the situation is even worse for longer term bond holders. We have many customers who are coming out of five year fixed rates where the rate on offer was around 4.60%. Now, they are looking at 2.01% as the market leading five year fixed rate, a significant reduction in interest of 56%. For someone with a maturing lump sum of £50,000, this is equivalent to their income dropping from £2,300 per year to £1,005.

Investing for fixed income

It is therefore perhaps unsurprising that many fixed rate savers have had to consider a wider range of options than ever before in the search for higher levels of income, and in doing so this inevitably involves considering investments and the associated risk to your capital. One of the main issues facing those in this situation is that most traditional income investments only offer a variable income, and so comparing with a fixed rate bond can be more difficult. This is perhaps one reason which helps to explain why the Enhanced Income Plan from Investec has been such a popular plan with our customers.

Fixed income, fixed term

The plan offers a fixed income, which is paid to you regardless of the performance of the stock market, whilst the investment also has a fixed term, so you know exactly how much you will be paid and for how long. The current issue offers 5.04% fixed income each year, which is paid as 0.42% each month.

In addition to offering a fixed income, this plan is different to most investment funds in that is also offers some capital protection against a falling stock market. Known as conditional capital protection, this means that your original investment is retuned in full unless the FTSE 100 Index falls by more than 50% during the plan term. If it does, 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.

The Enhanced Income Plan is also available as an ISA and accepts ISA transfers with a minimum investment of £3,000.

Cash versus investment – understand the risks first

One of the main differences between the fixed rate bond and the fixed income investment is that with the former, your capital is treated as a deposit and is therefore protected and returned to you at the end of the term, subject to the bank in question remaining solvent. You also have access to the deposit protection available from the UK FSCS.

An investment into the Enhanced Income Plan is used to purchase securities issued by Investec Bank plc, which means the bank’s ability to meet and repay their financial obligations is equally an important consideration. However, since this is not a deposit, you are not eligible for compensation under the FSCS for default alone, and as highlighted above, the return of your capital is also dependent on the performance of the FTSE 100 Index and so is at risk.

Risk v 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 timeframe, and then consider whether you are prepared to accept the level of risk to your capital in return for the higher fixed rate.

Our best five year fixed rate is currently offering 1.90%. By accepting risk to your capital, the Investec plan offers 5.04% over six years, thereby offering more than two and half times the level of income each year. The main risk is that your capital is at risk if the FTSE 100 Index falls below 50% and so once you have understood how the plan works, the decision then is whether you are comfortable with putting your capital at risk in return for the higher fixed return on offer.

 

Compare fixed rate bonds »

Compare fixed rate Cash ISAs »

Find out more about the Investec 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.

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 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 its future performance.

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

5 percent fixed for 12 months – our best selling current account…

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Last updated: 25/10/2016

With more and more high interest current account providers announcing reductions to their interest rates, the 5% fixed for 12 months from Nationwide now looks even better than before. Here we take a more detailed look at the pressures savers are facing in these difficult economic conditions, as well as help reveal why the FlexDirect continues to be our best selling current account.

Nationwide FlexDirect account summary

  • 5.0% AER (4.89% gross p.a.) fixed for 12 months
  • Paid on balances up to £2,500, no interest paid above this amount
  • 1.0% AER variable on balances up to £2,500 after 12 months
  • You must pay in £1,000 per month to qualify
  • No requirement to set up direct debits
  • Contactless Visa debit card available
  • 12 month fee-free arranged overdraft available
  • Free text alerts to help you manage your account
  • No monthly account fee
  • Covered by the Current Account Switch Guarantee and Financial Services Compensation Scheme

Savings rates in dire straits

Our market leading instant access account (RCI Bank Freedom Savings Account) is currently paying 1.0% AER variable, whilst our best long term fixed rate (Vanquis 5 Year Fixed Rate Bond) will get you 1.95% AER – that’s an increase of less than 1% per year for tying up your money for five years, albeit the rate from Vanquis is fixed for the full term. Then of course there are a load of accounts offering rates in between these, mainly fixed rate bonds of different durations. It may be repeated far too often, but unfortunately it makes it no less true – savings rates are at record lows – and it would seem this at the very least, this is set to continue, and possibly get even worse.

Inflation into the mix

If record low savings rates weren’t enough to worry about, the Consumer Price Index rose from 0.6% to 1.0% in September, the biggest monthly rise in more than 2 years and its highest level for 22 months. Since this rise, less than half of all savings accounts are able to match or beat this level, which means many savers are seeing the value of their cash eroded in real terms. According to the Bank of England, the average easy access account now pays under 0.3%, and with further cuts to savings rates on the cards, inflationary rises are a serious cause for concern.

High interest current accounts

Although historically, current accounts offered little if anything in the form of interest on your account balance this has changed significantly in the last few years, and against this harsh economic backdrop for savers, it is hardly surprising that the high headline rates of interest on offer have made compelling reading. Indeed, high interest current accounts have been one of the most popular safe havens for those looking to combine all of the usual account features you would expect from a full banking service with a highly competitive rate.

5% fixed for 12 months

Top of the rate table is Nationwide’s FlexDirect account which offers 5.0% AER (4.89% gross p.a.) fixed for the first 12 months. This rate is paid on all in-credit balances up to £2,500 and you must pay in a minimum of £1,000 per month to qualify (this excludes internal transfers). After 12 months the rate reverts to 1.0% AER variable. There is no monthly account fee, and with top rates on instant access and fixed term deposits ranging between 1.0% and 1.95%, it is easy to see why this account has attracted so much attention.

Others falling short

TSB Bank also offers 5.0% AER but this is variable and is only paid on balances up to £2,000, rather than the £2,500 on offer from Nationwide. The rate is, however, paid ongoing rather than for a fixed period of 12 months. But TSB has recently announced that with effect from 4th January 2017, the rate will reduce to 3.0% AER variable and will only be paid on balances up to £1,500. This follows in the footsteps of Santander who announced back in August that the 3% top tier interest rate on its flagship 1|2|3 Account would be halved to 1.50%, taking effect from 1st November this year. Lloyds has also announced that the rate on their Club Lloyds current account will halve from 4% to 2% in January 2017.

So whilst Nationwide’s main competitors are reducing their rates, this makes the FlexDirect offering even more competitive, especially since the rate is fixed for the first 12 months. Currently we are not aware that Nationwide has any plans to reduce its rate, although they state their rates are constantly under review.

Fair Investment view

Commenting on the account, Oliver Roylance-Smith, head of savings and investments at Fair Investment Company said; “The FlexDirect from Nationwide offers a market leading interest rate on balances up to £2,500, although the £1,000 you are required to pay in each month is at the higher end compared to other current accounts offering competitive interest rates. There is also no monthly account fee, so all of the interest earned goes straight into your pocket. Although the rate drops to 1% variable after the first 12 months, this is still considerably more than most other current accounts and on a par with some of the top instant access accounts currently on offer. With the Current Account Switch Guarantee running alongside, there really is no excuse to finding out more.

Santander still the top choice on larger balances

With effect from 1st November, Santander’s 1|2|3 account offers 1.50% AER variable on all balances up to £20,000. If you were to compare this with the best instant access accounts on offer, it would be a clear market leader, albeit with the cap on the amount you can earn interest on. You can also earn up to 3% cashback on selected household bills such as council tax, gas and electricity, broadband, mobile phones and more. You must pay in at least £500 per month and have at least two active direct debits to receive interest and cashback. There is also a £5 monthly account fee, which may be cancelled out if you make the most of the cashback on offer – their site has a simple calculator to help you work out how much cashback and interest you might earn, versus this monthly cost.

A note on 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. Beyond these allowances, basic rate taxpayers will pay 20 percent on savings income and higher rate taxpayers pay 40 percent. Additional rate tax payers will not receive a personal allowance. Also note that income from ISAs does not count towards your Personal Savings Allowance (it’s already tax-free).

An important part to play for savers?

Even with the Personal Savings Allowance, there is no doubt that every penny counts in these days of record low rates, creeping inflation and economic pressures all round, and so the returns on offer from the best high interest current accounts cannot be ignored. 5% on £2,500 equates to £125. Our market leading instant access currently offers 1.0% and so you would need £12,500 in that account to achieve the same level of return. Although these are first and foremost current accounts, they also have every right to be considered amongst the range of options for savers.

7-Day Switch

Apart from the low interest rates generally on offer, one of the main reasons many of us have stayed with our current account provider far longer than other type of account, is the fear that something would go wrong with the direct debits associated with our account. However, since the introduction of the current account switch service in September 2013, the whole process of switching banks is easier and will now be completed in seven working days – the 7-Day Switch.

Over 40 banks have signed up to the service (including Nationwide and Santander), which makes sure that all outgoing payments, such as standing orders and direct debits, will be transferred across to your new bank on your behalf. The service also guarantees that should any incoming payments be sent to your old account in error, these will be automatically redirected to your new account for up to 36 months after your switch date. This means the banks do all the hard work for you, making switching smoother and faster.

To switch or not to switch?

The 7-Day Switch rules therefore offer peace of mind to anyone considering a switch from their current account provider. However, you don’t necessarily have to switch your current account – although Santander requires you to have at least two active direct debits, Nationwide does not and so if maximising interest is your top priority, you could also consider taking one of these accounts out in addition to your existing current account, thereby leaving everything you already have in place. You will of course have to make sure you pay in the minimum amount required each month in order to earn the level of interest on offer.

Could you get more from your current account?

Many existing accounts pay no interest at all, so with up to 5.0% available it is always worth comparing what the market has to offer. Staying put simply because you have all of your direct debits set up is no longer a valid reason, especially since the introduction of the current account switch guarantee (see below for further details). As a minimum, these accounts should be considered an important contributor to the overall returns from your savings.

 

Click here for more information on Nationwide’s FlexDirect account »

Click here for more information on TSB’s Current Plus account »

Click here for more information on Santander’s 1|2|3 account »

Click here to compare high interest current accounts »

 

Please note that all rates and charges quoted are subject to change.

Overdrafts are only open to customers aged 18 or over and are subject to approval.

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

Gross is the interest you will receive before tax is deducted.

Savings Focus: Investec Retirement Deposit Plan offering 3.75% each year

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Last updated: 08/11/2016

There’s no denying that the outlook for traditional Cash ISAs at the moment is bleak. Not only are savings rates at rock bottom, but banks don’t really want the additional cost of having to run the Cash ISA tax wrapper that goes with it – most high street banks simply do not want your Cash ISA money – and therefore for those that do, they only need to offer a low rate of interest to get it. For those looking for alternatives, this new launch Cash ISA from Investec Bank plc offers an interesting way to receive tax efficient withdrawals each year, combined with the potential to receive back an amount equal to your initial deposit at the end of the fixed term. Here we take a closer look to see how it stacks up.

Traditional Cash ISAs offering low returns

The banking and economic environment continue to create challenges for savers, brought about in the main by the impact of record low interest rates on our savings and our future. The current market for traditional Cash ISAs still offers some of the lowest rates ever seen. In fact, you are hard pushed to get much over 1.50% in return for tying up your money for five years, which is why many looking for a fixed rate are considering shorter term options.

Currently our most popular deals come from Aldermore Bank, paying 0.95% AER, 1.15% AER and 1.20% AER on their 1, 2 and 3 year fixed rates respectively. You can save from £1,000 and can transfer existing ISAs. Our leading instant access account is the AA Cash ISA Easy Access, paying 0.75% AER variable.

Cash ISA alternative – potential for higher returns

By linking the amount of capital that is returned to you at the end of the plan to the FTSE 100 Index, this structured deposit plan offers the potential for higher returns than those that are available from more traditional products such as fixed rate Cash ISAs. So the upside is the potential for higher returns, whilst the downside is that since your return is linked to the performance of the UK stock market, unlike a fixed rate it is not guaranteed. This is the trade off for the opportunity to receive higher overall returns.

Fixed payments of 3.75% each year

The Investec FTSE 100 Retirement Deposit Plan has a fixed term of 6 years and pays a fixed payment of 3.75% each year, paid to you regardless of what happens to the FTSE 100 Index. Over the six year term this equates to 22.5%.

Capital returned at the end of the plan

The aim of the plan is to withdraw fixed annual payments from your initial deposit over 6 years, and repay the remainder of your initial deposit plus an additional return at maturity. The amount of capital returned at the end of the plan therefore, is either the remaining 77.5% of your initial deposit, or the remaining 77.5% plus an additional return of 22.5%.

This additional return is paid provided the FTSE 100 is higher than 90% of its level at the start of the plan, so the Index could have fallen up to 10% and you would still receive this additional return. If the FTSE has fallen by 10% or more, the amount returned to you will only equal the remaining amount of your initial deposit (i.e. no growth will be achieved).

‘Defensive’ feature

Since the additional return on offer is dependent on the performance of the FTSE 100 Index, the defensive feature of the plan is an important one to understand. Rather than the Index having to finish higher than its value at the start of the plan, the Index can fall up to 10% and the fixed return of 22.5% is still paid.

The use of averaging

When calculating the final level of the FTSE 100 Index 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.

Returns compared

The 3.75% annual payment is well over double any fixed rate on offer from a traditional Cash ISA. However, it is important to remember that in the case of a traditional fixed rate Cash ISA, your initial deposit is always returned in full at the end of the fixed term. Although the annual payments from the Investec plan are fixed and paid each year, it is only if the additional return is paid at the end of the plan term would you be better off overall.

Capital protection

Since the plan is a structured deposit you will receive the remainder of your initial deposit back in full at the end of the six year term regardless of what happens to the FTSE 100 Index, and as long as the deposit taker for the plan, Investec Bank Plc, is able to repay your money. The bank’s ability to stay solvent and repay your capital is known as counterparty risk and is the same risk you take with any capital deposited with an institution with a UK banking licence.

In the event that Investec is unable to meet its liabilities, this deposit plan is eligible for Financial Services Compensation Scheme (FSCS) protection. Therefore, eligible depositors could be entitled to claim up to £75,000 per person.

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.

Cash ISA only

Please note that this plan is only available as a Cash ISA. The plan also accepts ISA transfers, from both Cash ISAs and Stocks & Shares ISAs and has a minimum deposit of £3,000 and the maximum deposit for a new current year ISA (2016/17) is the ISA limit of £15,240.

Fair Investment view

Commenting on the plan, Oliver Roylance-Smith, head of savings and investment at Fair Investment Company Limited, said: “There’s no getting around the fact that the rates on offer from traditional Cash ISA savings products remain at record lows, and this looks set to continue. This is a real challenge for savers. By combining capital protection, fixed annual payments and the potential for an additional 22.5% return at maturity, this new launch from Investec offers an interesting alternative. The best long term fixed rate Cash ISAs are currently only offering a little over 1.50%, so if this plan pays the growth return at maturity, your overall return will be well over double these top deals.”

He continued: “Both are treated the same for FSCS purposes (up to the usual deposit scheme limits) but unlike the fixed rate Cash ISA, the maturity payment on the Investec plan is dependent on the FTSE and is not therefore guaranteed. So if you are prepared to sacrifice a guaranteed rate of interest, then the potential higher returns on offer could be appealing in the current economic climate.”

This plan is open now for new ISA deposits up to the £15,240 allowance for the current tax year (2016/17), as well as Cash ISA and Stocks & Shares ISA transfers. The minimum investment is £3,000.

 

Click here for more information about the Investec FTSE 100 Retirement Deposit 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 deposit plan that is capital protected. There is a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial capital and any returns stated. In this event you may be entitled to compensation from the Financial Services Compensation Scheme (FSCS), depending on your individual circumstances. In addition, you may not get back the full amount of your initial deposit 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.

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

Summer sizzlers: our selection of the hottest deals on offer this summer

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Last updated: 12/09/2016

As the Olympic Games continue to keep us gripped with excitement, it’s not just the GB Team that’s sizzling this summer. The news that the Bank of England base rate has fallen to a new record low has meant the need for both savers and investors to review their options has really heated up. So to help you stay on top of all the action, we bring you a selection of the hottest savings and investment deals on offer this summer.

Interest rates

Since the recent reduction to a new record low for the Bank of England’s base rate, savings rates have started to fall at a significant pace. Needless to say the outlook for savers is not good, but it’s not just savings rates that are falling. Bond yields also face record lows whilst the share prices of many of the higher yielding FTSE 100 companies have gone up as more investors search for income. So the outlook is bleak for both savers and investors, and the need to make the most out of your capital has suddenly become priority number one this summer.

So what’s hot?

For many savers, longer term savings rates are not offering enough of an increased rate to justify tying your money up for longer, and so we see most activity is in the short term space, from instant access up to 2 years. Whilst as you might expect, with interest rates coming down, many savers inevitably start to consider taking on more risk with their capital in the hunt for higher returns, so we also cover some of our income and growth investment best sellers.

Combining every day banking with up to 5.0% interest

The fact remains that loyal bank customers are rarely rewarded and so usually face far lower rates on their savings compared to those who shop around. Well this is now also true of current accounts. Although historically these accounts have been renowned for offering very low rates of interest, this has started to change significantly in the last few years with some offering very competitive returns indeed.

Low monthly balance top pick – Nationwide’s FlexDirect account pays 5.0% AER fixed for the first 12 months on all in credit balances up to £2,500. Thereafter the rate reverts to 1.0% AER variable.

Higher monthly balance top pick – Santander’s 1|2|3 account pays 3.0% AER variable on your entire balance up to £20,000 provided your balance is at least £3,000. This rate is set to change to 1.50% AER on all balances up to £20,000 from 1st November 2016. It also offers some competitive cashback rates on a wide selection of household bills. A £5 per month account fee applies.

Instant access – market leading 1.20% AER variable

When longer terms savings rates are low, instant access accounts see far greater inflows as savers use this as a safety net whilst reviewing other options. The Freedom Access Account from RCI Bank is a market leading instant access account paying 1.20% AER variable and you can save from £100 up to £1m, with free and unlimited payments and withdrawals. RCI Bank is part of the Renault global banking group and so the first €100,000 equivalent is protected by the French deposit guarantee scheme (FGDR) rather than the UK FSCS.

For those where the UK FSCS is more of a priority, Aldermore’s Easy Access Account offers 1.00% AER variable on balances from £1,000 to £1m, whilst the B account is an innovative new banking service from Clydesdale and Yorkshire Banks which combines a current account with an instant access account, the latter offering 1% AER variable on all balances. The interest rates alone are worth a closer look but this account might particularly appeal to the more technically savvy saver due to the intuitive B banking app which forms part of the overall proposition.

Fixed rate bonds – short terms hit the top spots

Whilst instant access offers 1.20%, a top deal on a 5 year fixed rate is only offering 1.0% per year more at 2.20% AER. These are without doubt some of the lowest long term fixed rates in history and this 1% margin has resulted in more money staying in shorter term fixed rates. Here are our current top picks for those who can tie their money up for between 6 months and 3 years, all of which are eligible for the UK’s FSCS:

6 months top pick: Habib Bank 6 month Fixed Rate Deposit, offering 0.80% AER

1 year top pick: Bank of Cyprus 1 Year Fixed Rate Bond, paying 1.30% AER

2 year top pick: Bank of Cyprus 2 Year Fixed Rate Bond, paying 1.40%

3 year top pick: Bank of Cyprus 3 Year Fixed Rate Bond, paying 1.50%

The minimum deposit with Bank of Cyprus accounts is £10,000 whilst for Habib Bank it is £1,000. For those looking for a 1, 2 or 3 year fixed rate account with a lower minimum, Aldermore Bank pays 1.40% AER over 3years, 1.30% AER over 2 years and 1.20% AER fixed for one year, all with a minimum of £1,000.

Long term savings alternative – potential 24% growth return

For those looking for the potential for higher growth and are prepared to tie their money up for the longer term, the Investec 6 Year Defensive Deposit Plan offers an alternative that some savers might find attractive. By linking your return to the FTSE 100 Index, this deposit plan offers the potential for a 24% fixed return, which is paid provided the value of the Index at the end of the plan, is higher than 95% of its value at the start of the plan (subject to averaging). So the FTSE can fall up to 5% and you still receive the fixed return. However, if the Index is lower, you will only receive a return of your original capital.

The best long term fixed rate savings bonds are paying around 2.20% AER whilst by linking your deposit to the FTSE, if this Deposit Plan pays out the 24% return is equivalent to 3.65% AER. With record low longer term fixed rates forcing some savers to consider a wider range of options, the combination of capital protection plus the potential for a high growth return could be a compelling opportunity. Taxpayers can also benefit from tax free growth as the plan is also available as an ISA.

Fixed income investment

Another consequence of this sustained period of low longer term fixed rates is that savers start to consider taking on more risk with their capital in the hunt for higher returns. One such plan that has been popular in this area is the Enhanced Income Plan from Investec Bank. Unusually for an investment, it has a fixed term and offers a fixed income each year, paid to you regardless of the performance of the stock market. It also pays income each month which is the most popular payment frequency. The latest issue pays 4.92% per year, paid as 0.41% each month.

Also unusual for an investment is the inclusion of some capital protection, or ‘conditional capital protection’. This means that your initial capital is returned at the end of the investment unless the FTSE falls by more than 50% during the fixed term of the plan. 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.

Up to 6.0% investment income, quarterly payments

The Focus FTSE Quarterly Contingent Income Plan offers up to 6% per year which is higher than the income on the Investec plan however it is not fixed, but rather dependent on the performance of the FTSE 100 Index. A quarterly payment of 1.50% is made provided the value of the Index at the end of each quarter is at or above 75% of its value at the start of the investment. If the Index is below 75% of its opening level, no income payment will be made for that quarter.

Your initial investment is returned in full unless the FTSE has 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 and so you could lose some or all of your initial investment.

Both of these plans are available as an ISA and accept ISA transfers, in which case your income would be tax free.

Defensive growth plans

Finally, in the investment growth space, defensive plans have been popular on the back of the UK’s decision to leave the UK and the uncertainty around what impact this might have on our growth and economic prospects. These defensive plans offer the potential for investment level returns even if the stock market goes down, in some case by up to 50%. They are therefore proving popular with investors concerned about the historically high level of the FTSE and would therefore like to include a defensive element to their investment. This plan may appeal to those who think the FTSE might fall slightly, stay the same, or rise in the coming years but not significantly.

Defensive Kick Out top pick: Investec’s FTSE 100 Step Down Kick-Out Plan offers the opportunity for 8.0% for each year invested (not compounded) even if the FTSE falls up to 20% over the term of the plan. Capital is at risk is the FTSE falls by more than 50%.

Fixed term defensive growth top pick: Investec’s FTSE 100 Defensive Growth Plan offers a 33% fixed return at the end of the plan, provided the Index it at least half its value at the start of the plan (i.e. it can fall up to 50% and you still receive the 33%, along with a full return of capital). Your capital is at risk if the FTSE has fallen by more than 50%, in which case you could lose some or all of your initial investment.

 

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AER stands for the Annual Equivalent Rate and illustrates what the interest rate would be if interest was paid and compounded once each year. Gross is the interest you will receive before tax is deducted.

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 or shares listed within the Index. As share prices can move by a wide margin, plans based on the performance of shares represent higher risk investments than plans based on the FTSE 100 Index as a whole.

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 or shares listed within the Index is not a guide to their future performance.