Posts Tagged ‘instant access’

How the Bank of England interest rate hike could affect you

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Last month, the Bank of England raised their base rate for the first time in more than ten years, and by doing so opened the door to increased monthly costs for many homeowners. What’s more, at the time of writing inflation continues to sit at a five year high of 3%, which means that the cost of living has more than trebled in the last 12 months. These two factors alone combine to create additional strains on the average UK household, and a situation which may influence some to reconsider their financial position. We take a look at what the latest Bank of England base rate and inflation might mean if you are looking to re-think your savings and investments.

Inflation

UK inflation, as measured by the Consumer Price Index (CPI), remained at its five year high of 3% for the second month in a row, according to the latest report released by the Office of National Statistics. And despite this being a full one per cent over the Bank of England’s target of 2%, it is also widely predicted that inflation will increase again before the year’s end.

Base Interest Rate Hike

Approximately 15 months after cutting their base rate of interest to emergency levels, the Bank of England’s Monetary Policy Committee voted on November 2nd to increase the interest rate from 0.25% to 0.5%. The move represents the first increase for ten years and has had a knock-on effect with homeowners, as a number of high street banks have since increased their standard variable and tracker rates, thereby increasing the cost of living for many.

No doubt we will see more lenders follow suit this month, and the combination of increased mortgage interest rates and high inflation 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.

Not Passed On To Savings Accounts

There was a general consensus among economists that the Bank of England would raise their base rate before the end of the year, and so even before the Monetary Policy Committee voted in favour, there had been much discussion on both the advantages and disadvantages of a potential increase.

The most common advantage given in support of an interest rate hike was that it would likely increase the savings rates offered by banks, a welcome change for savers who have had to face year after year of some of the lowest savings rates on record. Unfortunately, although banks have been quick to raise their mortgage interest rates following the hike, the majority of banks have not done the same for their savings accounts – a real ‘lose / lose’ for both borrowers and savers alike.

Savings Accounts At A Glance

Savings rates therefore continue to under-deliver. A review by Simply Savings of the savings rates currently on offer shows rates of around 1.30% AER on instant access; 1.80% AER and 2.05% AER for one and two-year fixed rates respectively, around 2.25% AER for a three-year fixed rate and 2.37% AER if you fix for five years. Therefore, savings accounts do not come close to matching inflation, let alone beating it, meaning savers are still losing money in real terms, even if you are able to tie your money up for five years.

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Do your homework

Whenever considering changing strategy, it is important to do your homework. This means comparing the amount of interest you already receive with what is currently available in the market. If you are not receiving anything close to the above rates, a change may be worthwhile, and remember, despite the fact that savings accounts do not provide rates that counter the effects of inflation, they do offer full capital protection.

If you are not prepared to take on more risk to potentially access higher interest rates, then there are not many alternatives available on the market.

Taking On Risk Or Losing Money In Real Terms

For the entire time that the interest paid on your savings is less than the prevailing rate of inflation (and that’s after any tax has been taken into account), the value of your money is going down in real terms, and the longer this goes on, the more an impact it will have. It may well therefore be time to start re-evaluating your strategy when it comes to savings, as you would have to receive a significant return in the current climate just to match inflation.

With the added financial pressure brought about due to higher inflation, it may force us to consider investing in order to try and keep up with the cost of living. We are then faced with the conundrum of whether to take on more risk in order to achieve potentially higher returns, versus record low interest rates but without the risk to our capital.

Capital at Risk Products

Capital at risk investment plans offer a defined return for a defined level of risk. Combined with a fixed or maximum term, they therefore offer potential investors a clear trade-off between risk and reward, hereby enabling them to be compared with alternative options.

When you invest in a capital at risk investment plan, although your capital is not directly invested into the stock market, their returns are generally linked to the performance of the FTSE 100 Index (‘FTSE’ or ‘Index’). The returns for a capital at risk product are often dependent on whether the FTSE stays or ends above a certain level, for example a fix growth or income payment provided the FTSE ends a plan year higher than its value at the start of the plan.

Income Investment Plan Example

An example of one of the most popular income investment plans is the FTSE 100 Defensive Income Plan from Investec Bank, which provides investors with the opportunity to receive 7.25% interest each year provided the FTSE has not fallen by 20% or more at the end of each quarter. The plan has a second investment option offering 5.50% per year provided the FTSE does not fall by 40% or more.

Unlike deposit based savings products, this plan puts your capital at risk and if the FTSE has fallen by more than 40% at the end of the six-year term, 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 for default.

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

Risk v Reward

As with any investment, it is important to give full consideration of the risk versus reward on offer. A good benchmark for assessing your investment is to compare what you could get from a fixed rate deposit over a similar timeframe, and then consider whether you are prepared to accept the level of risk to your capital in return for either a higher fixed rate, or the potential for a higher variable income.

In the example above, the potential income on offer is either 5.50% or 7.25% depending on how much the FTSE can fall each quarter. The best fixed rate on offer over a similar timeframe is in the region of 2.50%, so one of the questions to ask is whether the ability to receive around 2 to 3 times more interest is sufficient potential reward for putting your capital at risk if the FTSE falls 40% or more?

Conclusion

There is little doubt that higher inflation and an increase in the Bank of England’s interest rate has put increasing financial pressure on households in the UK. With a reduction in the amount of disposable income for many, uncertainty around future wage growth and no direct uplift in savings rates, one could argue that for those with mortgages, unless you can secure a savings rate higher than your mortgage rate, you should be paying off your mortgage as a priority, unless there are higher interest rates being paid on other debt such as credit cards, etc. which should be paid down first.

Although savings accounts do offer protection to your capital, since the banks have not passed on the interest rate rise to their savings accounts, the interest paid is likely to fall well short of inflation. Therefore, the fact that savers are losing money in real terms is a harsh reality of where we are right now, with some uncertainty of what this may look like in the coming months and years.

For those looking to secure a higher level of income and/or growth over and above the rise in the cost of living, then investing may be the only option since there are no savings products paying anything close to the current rate of inflation. You may want to explore the investment plans we have on offer, as they may provide the opportunity for returns to counter the adverse effect of inflation. However, if you are looking to invest in a plan, it is important to do you research, and make sure you fully understand the risks involved before putting your capital at risk.

 

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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.

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

The investment plans referred to in this article are structured investment plans that put your capital at risk and are not covered by the Financial Services Compensation Scheme (FSCS) for default alone. There is a risk of losing some or all of your initial investment due to the performance of the FTSE 100 Index. There is also a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial investment and any returns stated. In addition, you may not get back the full amount of your initial investment if the plan is not held for the full term. The past performance of the FTSE 100 Index is not a guide to its future performance.

Investment Focus: Meteor FTSE Monthly Contingent Income Plan

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Is inflation really a factor when deciding what level of income you would like to achieve from your capital? Or perhaps it is the combination of the potential income and the possibility of any capital growth or decline in value that is our benchmark? Either way, how much income an investment might generate, when you might get paid, and the potential risk to your capital, would seem to be the obvious considerations when assessing any sort of income producing investment. And whilst inflation remains at a five year high of 3%, it is likely that if it wasn’t on your radar already, it is now.

Against this challenging economic environment, we take a look at the latest edition of Meteor’s FTSE Monthly Contingent Income Plan, which offers the potential to receive a high level of income that could counter the adverse effects of inflation over the medium term.

Plan summary

The new Meteor FTSE Monthly Contingent Income Plan gives investors the chance to receive a monthly income of up to 0.5%, which equates to 6.0% annual interest. Investors receive the opportunity for income payments each month, and the plan has a fixed term of 10 years. Although the plan is designed to continue for the full 10 years, it also has the ability to mature before the full term (known as ‘kicking out’) at the end of each quarter from the 18th month of the plan onwards.

FTSE linked

The plan has the potential to provide 6.0% interest each year, but whether an income payment is made or not is dependent on the performance of the FTSE 100 Index (‘the Index’ or ‘the FTSE’). In addition to the level of income achieved, the performance of the FTSE also determines the treatment of your initial capital at the end of the investment term.

The FTSE 100 Index tracks the share prices of the 100 largest companies listed on the London Stock Exchange, and is widely recognised as the proxy benchmark for most investment managers, especially those investing predominantly in UK equities.

Potential for high interest

The latest version of the plan offers investors the opportunity to receive a monthly return of 0.5% (6.0% annually), provided the value of the FTSE 100 Index at the end of the month has not fallen by more than 25% below its level at the start of the plan. Therefore, provided the FTSE stays at or above 75% of its starting level for the entire year, then the annual return on the investment would 6.0%, which is double the current rate of inflation.

For those with a more defensive view of what might happen to the FTSE in the coming years, the plans offers a second investment option which pays up to 5.25% each year provided the FTSE does not fall by more than 35% at the end of each month.

Some capital protection from a falling market

In addition to the amount of income paid, the treatment of the investor’s original capital is also dependent on the performance of the FTSE, and so this investment puts your capital at risk. The plan does offer some capital protection from a falling market since your initial investment will only be reduced if, at the end of the plan, the FTSE has dropped by more than 40% below its value at the start of the plan.

Therefore, the FTSE could fall by up to 40% of its starting value and the invested capital will still be returned in full. But if the FTSE falls by more than this, the invested capital is reduced by 1% for each 1% fall. For example, if the FTSE fell by 41% then the investor would lose 41% of their capital. You should therefore only consider this investment if you are prepared to lose some or all of your initial investment.

Kick out (early maturity)

Although the plan has a maximum term of 10 years, after 18 months it has the ability to “kick out” or mature early every quarter. This feature is also dependent on the performance of the FTSE, as the plan will only mature early if the Index has risen by 5% or more above its value at the start of the plan. In the event that the plan does mature early, the initial investment is returned in full along with a final monthly income payment, at which point the plan comes to an end.

Monthly Payments

The plan offers the potential for an income payment each month, dependent on the closing level of the FTSE on the relevant monthly measurement date. The monthly return of 0.5% will be paid to the investor if the Index is at or above 75% of its level at the start of the plan. Therefore, the FTSE can fall up to 25% and income will still be paid. If the FTSE falls more than 25%, no income is paid for that month, and the next opportunity to receive income would be the next monthly measurement date.

Defined risk and defined returns

One of the reasons investment plans such as these are popular with our investors, is that the potential returns are stated up front, whilst the investor also knows at the outset in what circumstances their capital is at risk. These defined returns for a defined level of risk, allow potential investors to weigh up whether they are prepared to put their capital at risk in return for the potential monthly interest on offer.

ISA friendly

As well as non-ISA investments, this income investment is available as a new ISA up to the current limit of £20,000, and also accepts transfers from both Cash ISAs and Stocks & Shares ISAs.

Fair Investment conclusion

Commenting on the plan, Oliver Roylance-Smith, head of savings and investment at Fair Investment Company Limited, said: “With inflation rapidly becoming a thorn in every investor’s side, not least those seeking an income from their capital, the ability to achieve up to twice the current rate of inflation, even if the FTSE falls up to 25%, is certainly worth a closer look. Combined with some capital protection against a falling stock market, and the defined returns, defined risk on offer could be appealing for a wide range of investors.”

Click here to view the Meteor FTSE Monthly Contingent Income Plan »

 

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

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

This is a structured investment plan that is not capital protected and is not covered by the Financial Services Compensation Scheme (FSCS) for default alone. There is a risk of losing some or all of your initial investment. There is a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial investment and any returns stated. In addition, you may not get back the full amount of your initial investment if the plan is not held for the full term. The past performance of the FTSE 100 Index is not a guide to its future performance.

How to tackle inflation with your savings and investment strategy

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

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

Savings and Investment Strategy

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

Instant Access

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

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

Fixed rate bonds

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

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

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

Cash falling short

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

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

Investment Plans

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

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

Investment plan features

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

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

Savings and Investment Portfolio Example

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

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

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

Income achieved

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

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

Treatment of capital

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

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

In conclusion

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

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

 

Click here to compare Instant Access Accounts »

Click here to compare Fixed Rate Bonds »

Click here to compare Fixed Rate investments »

Click here to compare Investment plans »

 

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

The investment plans mentioned are structured investment plans that put your capital at risk and are not covered by the Financial Services Compensation Scheme (FSCS) for default alone. There is a risk of losing some or all of your initial investment. There is a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial investment and any returns stated. In addition, you may not get back the full amount of your initial investment if the plan is not held for the full term. The past performance of the FTSE 100 Index is not a guide to its future performance. These investments do not include the same security of capital which is afforded to deposit accounts.

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

Savings Focus: Post Office Online Saver hits the easy access mark

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The latest version of the Post Office’s popular Online Saver account not only offers a highly competitive rate of interest, but also contains all the features you would expect from one of the most competitive accounts available on the high street. If you are looking for a new instant access savings account, or wish to transfer existing funds from an account that is no longer paying you a decent return, the Online Saver from the Post Office could be the right one for you. We take a closer look at what the latest issue has to offer.

Top interest rate

The main feature that sets the Post Office Online Saver account part from most of its competition is the interest rate. The account currently offers 1.27% AER variable gross, which at the time of writing is one of the best interest rates available on the high street.

Compared to other accounts?

The latest figures from the Bank of England* estimate that the average instant access account has an interest rate of a paltry 0.14%. This means that hundreds of thousands of savers in the UK could benefit from the Post Office’s Online Saver rate.

For example, if you have £50,000 in an average savings account you will receive just £70 per year, whereas, if you put £50,000 in the Post Office Online Saver account, you would receive £635 over the first 12 months. Just think what you could do with an additional £565…

Choice of monthly or annual Interest

An attractive feature for some savers is that the Post Office provide the option to receive interest monthly or annually, giving you the choice to decide when you are paid. The interest is paid into your Online Saver account so if you choose to have it paid monthly, you can also benefit from compound interest.

Instant access

The Online Saver account may be a good option for savers, as it offers competitive interest whilst allowing instant access to your savings. The account allows you to stay flexible with your savings, as there are no limits to the number of withdrawals you can make, and no penalties or notice periods.

Quick and easy

Withdrawals are made to your nominated account, which is normally set up as your current account, so you have quick and easy access to your savings. You can also make a deposit at any point, giving you complete control over your savings.

Any transactions can be made instantaneously through either the Online Saver’s online banking, or the Post Office app. It is important to bear in mind that you have to register for the Online Saver’s online banking service to manage your account via the internet or on the mobile app.

Underlying rate

The interest rate on offer includes a fixed interest bonus of 1.02% AER for 12 months from the account opening. Since it is fixed, this part of your interest rate is guaranteed not to change for the first 12 months. However, after 12 months it is important to note that the rate will revert to the Post Office’s underlying rate, which currently stands at 0.25% AER variable. Although this rate is still above the average quoted for instant access, at this point you would need to consider your options again.

Starting deposit and account balance

It is possible to open an account with the Post Office with just £1 and there is no minimum operating balance, once the account is up and running. There is no restriction on the size of a deposit, so long as the account’s balance does not exceed £2 million.

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 the Post Office.

Easy to apply

The account has to be opened online but only takes a few minutes to apply. You can open your Post Office Online Saver by clicking here »

The Post Office

The Post Office is one of the best-known brands in the country having over 370 years of service. One of the UK’s largest financial services chains, they have over 11,500 branches nationwide which receives over 17 million customer visits per week.

Financial Services Compensation Scheme

The Post Office Online Saver is provided by the Bank of Ireland UK which 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 the Post Office 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.

Find out more

To find out more about the Post Office Online Saver, please click here »

* Bank of England average quoted household interest rates for instant access savings, 30th September 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.

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

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

Inflation Latest

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

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

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

The Future for Interest Rates

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

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

Uncertainty

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

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

Lagging Wage Growth

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

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

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

Savings Products

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

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

Do Your Homework

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

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

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Taking on More Risk or Face Losing Money in Real Terms

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

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

Capital at Risk Products

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

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

Risk Versus Reward

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

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

In Conclusion

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

Click here to compare Instant Access Accounts »

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

The fixed income investment mentioned is a structured investment plan that is not capital protected and is not covered by the Financial Services Compensation Scheme (FSCS) for default alone. There is a risk of losing some or all of your initial investment. There is a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial investment and any returns stated. In addition, you may not get back the full amount of your initial investment if the plan is not held for the full term. The past performance of the FTSE 100 Index is not a guide to its future performance. This investment does not include the same security of capital which is afforded to deposit accounts.

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.

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.

 

Compare our Top 3 current accounts »

Compare instant access accounts »

Compare fixed rate bonds »

Compare income investments »

Compare growth and defensive growth investments »

 

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.

Savings Focus: RCI Bank’s market leading instant access and fixed rate selections

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RCI Bank is a relative newcomer to the UK, but is currently offering some of the best deals out there. We take a closer look at their story as well as reveal their market leading and award winning instant access account and their top fixed rate bond deals.

RCI Bank

The story behind RCI Bank is a unique one since it originated from the Renault Group, one of the world’s largest car companies. Developed as their own internal bank, RCI Banque was founded in 1974 and was created in order to meet the need to help customers finance their vehicles. Forty years later and the RCI Banque group is still privately owned by the Renault Group and operates in 37 countries across every continent, lending over €12 billion a year. RCI Bank launched in the UK in 2015 in conjunction with RCI Financial Services who combined have over 200 staff and lend over £2 billion each year.

Current selections

Despite only launching earlier this year, RCI Bank already has a compelling range of award-winning products. With a range covering a market leading instant access account and fixed term savings accounts up to two years, the focus is on relatively short term cash, which should appeal to anyone with half an eye on future interest rate rises.

Market leading instant access: offering 1.65% AER

The Freedom Savings Account is currently offering 1.65% AER variable gross, which is market leading for this type of account. This top rate is available to both new and existing customers and is free from notice periods, penalties, bonus periods, tiered rates and fees (although a £15 fee for CHAPS transfers applies). What you see is what you get, which perhaps also explains why it has been given a Moneyfacts rating of Outstanding*.

The account is available as a single or joint account and is free to use so you can make unlimited payments and withdrawals without charge. You have the option of interest being paid monthly or annually which will also compound provided you don’t move it to another account. There’s no limit or fees on the number of withdrawals you can make and it can be opened with a low minimum of just £100. You can apply online and RCI Bank state opening an account takes less than 15 minutes, whilst you also benefit from full UK customer support available 7 days a week

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

 

RCI Bank short term fixed rate bonds: up to 2.35% AER

For those who are able to tie their money up for a fixed period and are also looking for a competitively priced fixed and regular rate of interest, RCI Bank also offers a duo of fixed rate savings accounts, over one and two years respectively. As you would expect, the rate of interest increases with the fixed term, the 1 year fixed term deposit offering 2.06% AER while the 2 year fixed term deposit is currently paying 2.35% AER. Both accounts have a Moneyfacts rating of Excellent*.

These fixed term deposits offer a guaranteed rate so you’ll know exactly how much you will earn by the end of the fixed term, whilst interest can be paid monthly or annually and can be compounded. Both deposits also give you the flexibility of unlimited top-ups for 30 days from your application however you cannot close your account once opened or make a withdrawal before the end of the term. You can apply online and the account has a low minimum of £1,000.

Click here for more info on the RCI Bank 1 Year Fixed Term Savings Account »

Click here for more info on the RCI Bank 2 Year Fixed Term Savings Account »

 

Deposit Guarantee Scheme

Deposits held with RCI Bank are not covered by the UK Financial Services Compensation Scheme but instead fall within the scope of the French deposit protection scheme, known as the FGDR or Fonds de Garantie Dépôts et de Résolution. Eligible deposits with RCI Bank are protected, and all of the accounts above are covered by the FGDR, protecting the first €100,000 per customer within the RCI Banque group. As with the FSCS, the protection covers each customer rather than each account and for joint customers, each customer is protected up to €100,000 (so up to €200,000 between them). Since the maximum eligible is based in Euros, the UK sterling equivalent at any given time will depend on the exchange rate between the British Pound and the Euro.

Further information – FDGR

Created by law, the FGDR compensates depositors for an amount up to €100,000 per person, per institution, when a banking institution fails. This guarantee benefits all bank customers, private individuals, businesses of any size and associations. For more information and to check their status, visit www.garantiedesdepots.fr/en.

* Moneyfacts awards valid as at 01.10.2015

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