Posts Tagged ‘capital-protected’
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).
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.
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.
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.
Despite the prospect of interest rates rising in the next few years, many savers understand that even when this does eventually occur, there is no guarantee that this will result in higher savings rates being offered by the banks. Indeed, most of us would agree that the 5% plus returns of yester-year are well and truly behind us. This has led many to consider moving some of their savings into areas with the potential for higher returns. Investing is perhaps the most obvious choice however there is also a popular middle ground, which combines the potential upside of stock market linked returns but without risking your capital and maintaining the FSCS depositor protection so many savers look for – the structured deposit.
Since many of these savers are using money that historically would have been put into a fixed rate bond, so we take a deeper look at the rise in popularity of the structured deposit by comparing it with the more traditional fixed rate.
Fixed rates fail to hit the mark
We are all aware that past performance is no guide to future performance when it comes to reviewing a particular investment or how a stock market index has performed previously, but what are the main risks associated today with cash and savings rates?
In years past it would have been commonplace for savings accounts to offer the potential to beat what at the time would have been much higher levels of inflation, especially if you were prepared to tie yourself in for the medium to longer term. But today, the best fixed rates are offering little above 3% and this has been the case for some time. This is therefore a significant shift in the savings landscape.
Savings or investment?
This sets the scene for the rise in popularity of an alternative to fixed rates bonds – the structured deposit. This product similarly provides full capital protection and can also be used for ISA money, both New ISAs (NISAs) and ISA transfers, therefore placing it in the savings space as a potentially viable alternative to more traditional offerings.
There are a variety of structured deposits being offered in the market today. Although they can be considered as an alternative to fixed rate bonds, they also have characteristics that are similar to investments. The purpose of this comparison is to help you understand what structured deposits are by comparing them with the more traditional fixed rate products and what you should look out for before putting your hard earned money in such products.
What is a structured deposit?
A structured deposit is essentially a combination of a deposit and an investment product, where the return is dependent on the performance of an underlying investment. The underlying investment is normally either an Index, such as the FTSE 100 Index, or a smaller number of shares from within the Index.
UK structured deposits naturally lean towards the FTSE 100 Index as this is the most commonly quoted benchmark of investment performance and is the most familiar to investors in this country. If the deposit uses a smaller number of shares rather than the Index itself then these are normally shares listed within the FSTE 100 Index and often it is the larger shares available that are used.
How do structured deposits compare with fixed rate bonds?
Structured deposits have a few important characteristics that distinguish them from the more traditional savings accounts. With a fixed rate bond the returns and maturity periods are fixed while structured deposits on the other hand have variable returns, and in some cases, variable maturities as well.
Structured deposits generally provide the possibility of higher returns compared to fixed rate bonds. This has particularly been the case in recent years with continuing record low interest rates and historically low savings rates. However, you should balance this possibility of higher returns against the risk of variable returns. In some scenarios, you may get lower or no returns at all.
Fixed or variable maturities
Most structured deposits have fixed terms which are normally between three and six years in duration whilst some incorporate the ability for the deposit to be redeemed before the maturity date. A popular example of this is an autocall, more commonly known as a ‘kick out’ plan. Here, the plan will mature early or ‘kick out’ provided the underlying investment performs in a particular way, which will be known prior to investing since it will specified in the terms and conditions of the plan. The Investec Kick Out Deposit Plan for example will mature early if the value of the FTSE 100 Index at the end of years 3, 4 or 5 is higher (subject to averaging) than its value at the start of plan. If it is not higher on any of these dates, the plan will continue.
Where a structured deposit is designed in this way and early maturity does occur, you can expect to receive, as a minimum, the full value of your initial deposit. Depending on the circumstances, this early redemption feature may benefit you – for example, if you wish to use your money in other ways, you can get back your initial capital and any stated additional returns as soon as redemption occurs.
You may, however, be exposed to reinvestment risk, as you would with any fixed term savings product. This is the risk of having to re-invest your money in a low interest rate environment when interest rates fall. To counter this, structured deposits are usually re-issued every 4 to 6 weeks so there is normally the facility to reinvest either in the provider’s current version of your original plan, or if the exact plan is no longer available, a similar plan with your original provider or another in the market. Therefore, depending on market conditions and your specific income or growth needs, a structured deposit may or may not be a good investment to put your money in.
What happens if I need to withdraw my deposit before the maturity date?
Structured deposits, like fixed rate bonds, are meant to be held for the full term. Your initial deposit will be repaid in full only at maturity (or early maturity where relevant). If you withdraw your deposit before the maturity date, you may lose part of your return and/or your initial capital. The amount payable to you depends on the market value of the underlying investment that your structured deposit is linked to, which cannot be pre-determined. There is also therefore the possibility that the value could be higher than your original deposit. You should also bear in mind that structured deposits may be subject to periodic valuations which may not be on a daily basis, for example weekly. This means that you may not be able to withdraw your deposit immediately.
What should I consider before investing in a structured deposit?
Structured deposits come in different forms. You should consider whether a structured deposit fits with your financial goals, attitude to risk and your personal situation. When choosing a structured deposit, these are some of the factors to consider:
When might you need this money and do you have any additional funds available? Consider your liquidity needs as your money will be tied up for a period of time and early withdrawal may result in loss of part of your return and/or your initial deposit. Fixed rate bonds are also likely to have penalties for cashing in before the end of the fixed term which is normally linked to a period of interest (for example, six months). This amount could be higher or lower than the loss for early withdrawal from a structured deposit. As with any fixed term plan, it is therefore prudent to make sure that you have sufficient savings set aside before investing in structured deposits.
Determine whether you have the risk appetite for these products. Structured deposits are riskier than normal fixed deposits as there is a risk that the underlying investment does not perform in the manner required in which case you may not receive any returns at all. In this scenario you would have been better off with a fixed rate bond. You should understand the risks involved and what will happen in a worst-case scenario and if you are unsure, seek financial advice from a professional.
One of the major risks to consider for fixed rate bonds is that your money loses value in real terms should it fail to keep up with inflation. Although inflation is historically low at present, so too are he returns available on fixed rates. Therefore, although you have the peace of mind of a guaranteed return, this is not guaranteed to keep up with increases in the cost of living and so your initial deposit plus any interest could in the future be worth less in real terms.
Since the returns from structured deposits are dependent on the performance of an underlying investment such as stock market indices or shares, you should understand how the performance of the investment affects the return on your deposit. Remember that past performance is not a guide to future performance.
Terms and Conditions
Read the terms and conditions and other documentation of the structured deposit carefully before making any commitment. If you do not understand how the product works, seek clarification. Do not buy anything you do not understand.
Structured deposits compared to fixed rate bonds
This table compares the main features of structured deposits and fixed rate bonds:
||Fixed rate bonds
||Structured deposits sometimes require a higher minimum investment amount (usually £3,000) but there are some providers who offer lower minimums of £500.
||The minimum amount for a fixed deposit is normally around £1,000 but note the recent trend for providers to offer tiered interest rates where the higher headline rates are only on offer for larger lump sums.
||Structured deposits have maturity periods that vary from 3 years to 6 years.
||Fixed rate bonds normally have maturities ranging from 9 months to 5 years although there are some who offer shorter terms.
||Some structured deposits incorporate the potential to mature early each year, currently from as early as year 3 onwards. In this situation, you will normally receive a return of your initial deposit along with any stated returns.
||Fixed rate bonds do not normally have the ability to mature early.
||Your initial deposit will be repaid in full: (i) At maturity; or (ii) If the bank redeems it before maturity. This will apply only if your structured deposit includes an option that enables the bank to redeem or “call” the deposit before the maturity date for reasons specified in the terms and conditions – this is normally dependent on the performance of the underlying investment.
||Your initial deposit will be repaid in full at maturity.
|Early withdrawal by the depositor
||If you withdraw your deposit before the maturity date, you may lose part of your return and/or initial deposit. The amount that you will be paid depends on the market value of the underlying financial instrument that your structured deposit is tied to, which cannot be pre-determined. You should also bear in mind that structured deposits may be subject to periodic valuation, which may not be on a daily basis. This means that you may not be able to withdraw your deposit immediately. Check the terms and conditions for early withdrawal of the deposit with your bank.
||If you withdraw your fixed deposit before maturity, the bank may levy certain charges. In most cases, your bank would have taken a corresponding commitment on your deposit with a counterparty.When you withdraw your deposit early, your bank may have to levy charges to cover the cost of its own commitment. Check the terms and conditions for early withdrawal of the deposit with your bank.
||Structured deposits are generally less risky than investing directly in the underlying investment since the bank is obliged to repay the principal in full at maturity or when it redeems the deposit before the maturity date.However, they are riskier than traditional fixed rate deposits because their returns are dependent on the performance of the underlying investment. In some scenarios, you may get no returns at all and only get back your initial deposit. Where a structured deposit is callable, you may be exposed to reinvestment risk. This is the risk of having to invest your money in a low interest rate environment when interest rates fall. Structured deposits have maturity periods that vary from 3 to 6 years and are designed to be held for the full term which means that you may not be able to use your money for other purposes before maturity, for example, investing your funds in a fixed rate bond or an alternative savings plan offering higher interest rates when interest rates rise. Structured deposits are exposed to the credit risk of the deposit-taking institution (for example, a bank). This is the risk that the deposit-taker will be unable to fulfill its obligation to pay you even your initial deposit should it fail and become insolvent. However, in this situation it is likely that you would be eligible to claim under the Financial Services Compensation Scheme, depending on your individual circumstances.
||Fixed rate bonds are considered low-risk as the interest payable is known at the outset and your initial deposit is fully capital protected. Fixed rate bonds are similarly exposed to the credit risk of the deposit-taking institution being unable to fulfill its obligation to pay you the deposited sum. However, in this situation it is likely that you would eligible to claim under the Financial Service Compensation Scheme.The impact inflation can have on your overall return is an important risk to be aware of since if the rate of return you commit to is lower or become lower than inflation during the fixed term, the purchasing power of your capital will be eroded and you may be unable to surrender without incurring penalties.
|Financial Services Compensation Scheme
||Structured deposits are covered by the Financial Services Compensation Scheme which covers deposit claims up to a maximum of £85,000 per person, per institution, subject to your individual circumstances.
||Fixed rate bonds are also covered by the Financial Services Compensation Scheme up to £85,000 per person, per institution.
||Structured deposits generally offer the possibility of higher returns compared to fixed rate bonds of similar duration. This is in line with the higher risks you have to bear since the return on a structured deposit is dependent on the performance of the underlying investment (such as stock market indices or shares) to which it is linked – if this does not perform as required, you may not get a return.
||Returns on fixed rate bonds are typically lower as they are less risky than structured deposits. This is because the deposit is fully capital protected and the rate of interest paid is fixed at outset and guaranteed to be paid provided you do not withdraw your money early and the provider does not become insolvent.
The final analysis
Fixed rate bonds pay a fixed rate of interest at predetermined times throughout the fixed term, so you know exactly what you will receive and when you will receive it, giving you certainty of interest and the peace of mind which this entails. Unfortunately times have changed. One of the main reasons for the increase in popularity of structured deposits has been the over-reliance of fixed rate bonds by savers who are now seeing the real value of their savings eroded at a time when they need it most.
Structured products combine capital protection with the potential to receive higher rates than available from fixed rate bonds. Since there is the potential to achieve only a return of initial capital, structured deposits are not however designed to meet the needs of every saver nor, perhaps, to receive your entire savings. Ultimately, which option or blend of options will depend entirely on your individual circumstances.
Weighing up all of the options
These are difficult times to say the least and in recent years it is the saver who has perhaps suffered more than anyone else. Record low savings rates continue, low wage increases have affected both private sector and public sector employees alike. Understanding the impact of low rates, especially over time, and giving full consideration to all of the options available, particularly using your ISA allowance, are all good reasons to compare traditional savings accounts with alternatives such as structured deposits.
There is a wide variety of structured deposits being offered in the market and as market conditions allow, these are constantly being updated with new versions of previous issues as well as completely new plans. We at Fair Investment Company aim to provide you with a continuous selection of the best the market has to offer so keep coming back to visit us.
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 independent financial advice.
Some of the plans referred to in this article are structured deposit plans that are capital protected. There is a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial investment and any returns stated. In this event you may be entitled to compensation from the Financial Services Compensation Scheme (FSCS), depending on your individual circumstances. In addition, you may not get back the full amount of your initial investment if the plan is not held for the full term. The past performance of the FTSE 100 Index and any of it shares is not a guide to its 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.
The economic environment continues to create challenges for savers, brought about in the main by the impact of record low interest rates on our savings and our future. Whilst the current market for traditional fixed rates still offers some of the lowest rates ever seen, it is perhaps easy to understand why the potential for higher returns available from the range of structured deposit plans is becoming a more compelling option for savers to consider. With this in mind, we take a detailed look at one of our most popular, the FTSE 100 6 Year Defensive Deposit Plan from Investec Bank, to find out why this plan could be an alternative for your deposit or Cash ISA savings.
Traditional savings products underperforming
The current economic environment is as challenging as it’s ever been and those that are feeling it most are cash savers looking for a competitive net return on their deposit, once tax and inflation are taken into account. Unfortunately, many traditional savings products are failing to deliver with both instant access and fixed rate bonds continuing to offer record low rates.
Potential for higher returns
By linking your returns to the FTSE 100 Index, this structured deposit plan offers the potential for higher returns than those that are available from more traditional products such as fixed rate bonds. The upside is the potential for higher returns whilst the downside is that since your return is linked to the performance of the UK stock market, unlike a fixed rate it is not guaranteed. This is the trade off for the opportunity to receive higher returns.
Potential return of 33% after 6 years
The Investec FTSE 100 6 Year Defensive Deposit Plan protects your initial deposit whilst offering a fixed return of 33%, provided the level of the FTSE 100 Index at the end of the plan is higher than 90% of its value at the start of the plan, subject to averaging. So the FTSE can fall up to 10% and you still receive the full growth return. The 33% fixed return is equivalent to around 4.85% AER. If at the end of the six year term the Index is equal to or lower than 90% of its value at the start of the plan, you will not receive a return but your original capital will be repaid.
Since the fixed return on offer is dependent on the performance of the FTSE 100 Index, the defensive element of the plan is an important one to understand. Rather than the Index having to finish higher than its value at the start of the plan, the Index can fall up to 10% and the fixed return of 33% is still paid. Whilst the FTSE remains at what are historically relatively high levels, this could be an appealing feature.
Last updated 24/11/2015
Structured deposits have experienced a rapid rise in popularity on the back of a sustained period of record low interest rates and falling savings rates. Whilst fixed rates remain under pressure and there is still uncertainty around the real increase in the cost of living in many parts of the UK, many savers are having to consider investing in order to try and meet the increased demands from their capital. But there is a middle ground that does not put your capital at risk – the structured deposit. To help you better understand this alternative product range, and to help you find out whether they could work alongside the other savings you have, we have put together our Saver’s Guide to Structured Deposits.
Savings rates reality
The mainstay of many a saver’s portfolio has historically been the fixed rate bond. However, rates here have been under continued pressure as banks have been able to secure cheap funding by alternative means. This means long gone are the days where committing your money for longer was all you needed to secure a high return that also had the potential to outstrip inflation. With many maturing fixed rate bondholders facing significant falls in the yields available, longer term fixed rates are in many cases failing to meet the needs of savers.
In addition to investing some of this capital to try and make it work harder, at the other end of the risk spectrum this has also resulted in a worrying trend of many savers shoring up more money than they normally would in instant access accounts. With many of these failing to offer rates anywhere close to inflation, savers are losing money in real terms – and that’s before the impact of tax is taken into account. So savers continue to face the toughest of decisions – either lose money in real terms from a savings account or take on more risk – and it is against this savings rates reality that the structured deposit has increased in popularity.
What are structured deposits?
Structured deposits are fixed term deposit accounts paying a return linked to the performance of an underlying investment, often the FTSE 100 Index or several shares in FTSE 100 listed companies. They therefore typically offer higher potential returns than a cash deposit, but also involve taking on more risk since unlike instant access accounts and fixed rate bonds, the return from a structured deposit is not guaranteed. They normally have a term of around five or six years although some also have the ability to mature early each year.
Who are they for?
Since your return is not guaranteed, they are for savers who are willing to give up the interest on a standard deposit for a potentially higher return linked to the performance of an underlying investment.
With the headline rate of inflation at its lowest level for five years, this should translate to happier times for both savers and investors. Unfortunately, whether you are taking a short term view, or perhaps looking to the longer term in the hunt for higher returns, trying to factor in the relationship between inflation and interest rates continues to create a real headache for all concerned – we therefore take a look at the latest developments to see if any lessons can be learnt. We also review the current range of savings rates on offer as well as reveal some of the more recent trends we are seeing.
Earlier this month the headline rate of UK inflation, as measured by the Consumer Price Index (CPI), fell to 1.2% for the year to September 2014, according to the latest figures from the Office of National Statistics (ONS). The fall was larger than expected and came as a surprise to many economists who were expecting a smaller reduction.
This sizeable fall of 0.3% on the previous month also means that CPI inflation is now at a five year low and well below the Bank of England target of 2%. In fact, with the exception of September 2009 at the height of the financial crisis when it stood at 1.1%, the current rate is the lowest we have seen for a decade.
What might happen to inflation?
The ONS figures show the weaker inflation recorded in September was a continuation of the trend over the last few months where we have seen falling food and energy prices. Despite a reduction in commodity prices and a strong pound also pushing the headline rate of inflation down, the consensus views seems to be that a period of deflation is not imminent and that inflation should close around 1.4% at the end of 2015 and possibly up to 2% by the end of 2016.
And yet with every inflation report and latest economic data, there are always warnings over potential inflation risk but perhaps a view which should be heard is that of former Bank of England Monetary Policy Committee (MPC) member Andrew Sentance who has said there are parallels between the prevailing economic conditions and those which led to a period in the 1980’s when inflation rose to 10% and interest hit 15%. These ‘conditions’ include low headline inflation, a strong pound, a benign oil price environment, structural change in the financial sector and spare capacity in the economy – perhaps we should at least take note of the possibility of inflation rising quicker than expected.
While top fixed rate deals might be thin on the ground at the moment, there are alternatives to traditional fixed rate bonds, such as structured deposit plans, which could be an option for those who would normally have chosen to lock their cash away in a fixed rate bond. See below for our selection of some of the best fixed rate bonds and alternative savings plans on the market in October 2014.*
Short term fixed rate bonds
For those looking for a short term fixed rate with a low deposit requirement, Aldermore currently offers a one year fixed rate bond offering 1.50% gross/AER requiring a minimum deposit of £1,000. No withdrawals are permitted during the term of the bond.
For a shorter fixed rate deal, Principality offers the option of a 9 month fixed rate bond or an 18 month fixed rate bond, with the former paying 0.75% AER/gross and the latter paying 1% AER/gross. Both of these fixed rate bonds require a minimum deposit of £5,000, and no additional deposits or withdrawals are permitted during the term of the plans.
Axis Bank offers a tiered interest rate on its one year fixed rate bond – earn 1.55% AER for deposits between £10,000 and £30,000, 1.60% AER for deposits between £30,000 and £50,000, or 1.70% AER for deposits between £50,000 and £200,000. Interest on this account can be paid monthly, quarterly or at maturity, and no withdrawals are allowed during the one year term of the bond.
Medium term fixed rate bonds
For those looking for a longer fix, Bank of Cyprus offers 2.10% AER/gross on its 18 month fixed term deposit, requiring a minimum balance of £1,000, up to a maximum of £1m. Interest is paid annually and the account is available on a single or joint basis.
Axis Bank also offers a 2 year fixed rate bond paying up to 2.20% AER, along the lines of the one year bond described above. The Axis Bank 2 year fixed rate bond pays 2.05% AER for deposits between £10,000 and £30,000, 2.10% AER for deposits between £30,000 and £50,000, or 2.20% AER for deposits between £50,000 and £200,000. Again, interest options are monthly, quarterly or at maturity, and no withdrawals are allowed.
If you currently hold most of a your business cash in a current account, it’s worth noting that cash that is not currently required as capital for the day-to-day running of your business will usually generate more interest if you move it into a specialist business savings account. To help you choose the right option for your business, we’ve put together a selection of some of the latest business savings accounts in October 2014.
Latest easy access account deals
If you’re likely to need access to your capital at short notice, Cater Allen’s Asset 30 account offers a rate of 0.65% AER/gross and pays monthly interest, with a minimum opening balance of £5,000. Withdrawals are permitted at any time, as long as you give 30 days’ notice.
Latest short term fixed rate deals
Aldermore currently offers a 6 month fixed rate account for businesses, which offers a rate of 1.50% AER on deposits between £1,000 and £1million. Balances under £1,000 earn a rate of 0.05% AER.
Fair Investment Company is committed to helping charities get the best interest rates on their savings. See below for our selection of some of the best charity saving accounts available in October 2014.*
Latest notice account deals
If you want to be able to access your charity savings at fairly short notice, the Manchester Building Society offers a 60 day notice Business Tracker account which promises an interest rate that will remain 0.65% above the bank of England Base Rate until 30th September 2015. The current rate on offer is 1.15% AER/gross and the account is open for deposits between £10,000 and £75,000.
It seems that regardless of the prevailing economic conditions, the kick out investment continues to be a popular choice with investors. Although not yet a mainstream investment when compared with investment funds, the defined return and defined risk on offer from this fixed term investment seems to make them particularly sought after when the market is at historically high levels and investors are finding it difficult to commit. We take a closer look at the kick out plan to try and understand why their popularity has continued to rise in recent years. We also consider how this might make for an attractive opportunity in the current investment climate as well as review some of the recent market trends.
Kick out investments hitting the mark
The defined return for a defined level of risk has made the structured investment an attractive addition to the range of investment options available, whilst in recent years the kick out plan has been the stand out of this type of investment in terms of popularity. Capable of adapting its structure in line with market conditions and investor demands, the inherent flexibility in how these plans can be put together is perhaps one of the main reasons for their continuing popularity, seemingly hitting the mark with a wide range of investors.
What is a kick out investment?
Kick out investments, or ‘autocalls’ to use the correct investment term, are fixed term investments that pay out a defined return providing a predefined event takes place. This predefined event is linked to the performance of an underlying investment, often a stock market index such as the FTSE 100 or sometimes a small number of FTSE 100 listed shares. If this ‘trigger’ event occurs, the plan automatically matures early or ‘kicks out’, returning your original capital along with the defined returns offered at the outset. Should this event fail to occur, the plan keeps going to subsequent trigger anniversaries or until the end of the fixed term.