Posts Tagged ‘investment isa’

Investment Focus: Investec FTSE 100 Defensive Income Plan

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Last updated: 07/11/2017

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

Plan overview – income

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

Plan overview – capital

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

FTSE linked

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

Potential 7.25% annual income

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

Defensive income

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

Investment term

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

Kick-out opportunity

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

Conditional capital protection

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

Risk v reward

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

Fair Investment view

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

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

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

 

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

 

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

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

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

Investment Focus: Investec Enhanced Kick Out Plan

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Last updated: 07/11/2017

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

Investec’s Enhanced Kick Out Plan offers the potential to achieve one of the highest headline growth rates of any kick out investment that is linked to the performance of the FTSE 100 Index. We take a closer look at the plan and review the risk versus reward on offer to see how this might make for an attractive opportunity in the current investment climate.

Plan summary

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

Kick Out (early maturity)

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

The use of averaging

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

Potential for high returns

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

Some capital protection from a falling market

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

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

Defined risk and defined returns

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

Investec as counterparty

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

Credit rating

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

Investec Bank Plc

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

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

ISA friendly

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

Fair Investment conclusion

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

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

 

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

 

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

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

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

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

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

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

Three options

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

The potential for high returns

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

Capital at risk

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

Kick out investment

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

The FTSE 100 Index

Plans linked to the FTSE 100 Index provide a potential return against what is widely recognised as the proxy benchmark for most investors and investment managers in the UK. Since the historical volatility of this stock market is familiar to many investors, they are in a better position to consider the pros and cons of the plan within the context of the underlying investment.

Investment term

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

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

Some capital protection from a falling market

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

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

Counterparty

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

Credit ratings and agencies

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

ISA friendly

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

Minimum investment

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

Fair Investment conclusion

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

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

 

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

 

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

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

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

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

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

The FTSE highs and lows

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

Defensive investment plans

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

Plan summary

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

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

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

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

‘Defensive’ feature

Since the fixed return on offer is dependent on the performance of the FTSE 100 Index, the defensive element of the plan is an important one to understand. Rather than the Index having to finish higher than its value at the start of the plan, the Index can fall up to 40% and the fixed return of 33% is still paid. Whilst the FTSE continues at what are historically high levels, this ‘defensive’ feature could be an appealing one, whist the fixed return is also paid if the FTSE goes up.

Some capital protection from a falling market

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

Defined risk and defined returns

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

ISAs and ISA transfers

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

Credit risk & compensation scheme

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

Credit ratings

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

Credit Suisse AG profile

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

Fair Investment view

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

 

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

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

 

No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment. Fair Investment Company does not offer advice and any investment transacted through us is on a non-advised basis. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.

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

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

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

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

Fixed rate bond

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

Fixed savings rate reality check

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

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

Fixed rate investment

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

NS&I versus Investec

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

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

Fixed term

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

Fixed rate

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

Payment frequency

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

Interest payments

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

Minimum/maximum contributions

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

Early closure

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

ISA option

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

Offer period

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

Treatment of capital

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

Credit risk & compensation scheme

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

Compared to inflation

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

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

Fair Investment conclusion

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

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

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

 

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

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

 

No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment. Fair Investment Company does not offer advice and any investment transacted through us is on a non-advised basis. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.

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

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

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

Our 10 best last minute ISA ideas for 2017

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Our 10 best last minute ISA ideas

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

1.    Our best-selling Investment ISA

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

2.    Fixed income Investment ISA

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

3.    Managed Portfolio Investment ISA

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

4.    Defensive Investment ISA best seller

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

5.    High Yield Investment ISA top seller

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

6.    FTSE Tracker Investment ISA

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

7.    Innovative Finance (Peer to peer) ISA

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

8.    Junior Investment ISA

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

9.    Self-select Investment ISA

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

10.   Low Monthly Contribution Investment ISA

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

 

Click here to compare Cash ISAs »

Click here to compare Investment ISAs »

Click here to compare our Top 10 Investment ISA plans »

Click here to compare Junior ISAs »

 

No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment. Fair Investment Company does not offer advice and any investment transacted through us in on a non-advised basis. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.

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

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

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

Top 10 Tips for 2017 ISA season

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

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

Tip 1 – Don’t miss any deadlines

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

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

Tip 2 – Know your limits…

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

Tip 3 – Maximise your ISA allowance

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

Tip 4 – Use next year’s £20,000

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

Tip 5 – Consider the impact of current ISA savings rates

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

Tip 6 – Remember the Personal Savings Allowance

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

Tip 7 – Think about tax free income

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

Tip 8 – Review existing ISAs

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

Tip 9 – Take advantage of ISA transfers

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

Tip 10 – Understand what your ISA could achieve

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

Start a new ISA or transfer your current ISA now

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

 

Compare Cash ISAs »

Compare Income ISA investments »

Compare Growth ISA investments »

Compare ISA transfers »

 

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

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

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

The value of investments and income from them can fall as well as rise and you may not get back the full amount invested. Different types of investment carry different levels of risk and may not be suitable for all investors.

Top 10 tips for ISA savers and investors

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Since we have just passed the halfway point in the tax year, now is the perfect opportunity to review your ISA planning, whilst you still have plenty of time to do so. There are plenty of ISA opportunities out there, and since each of us (over the age of 16 for a Cash ISA, and 18 for an Investment ISA) has a healthy ISA allowance each and every year, this really should be a top priority for all savers and investors to review all existing ISAs as well as the wide range of options open to them. To help you act and act fast, our head of savings and investments, Oliver Roylance-Smith, has put together his Top 10 ISA tips, so there can be no excuse for missing out on valuable tax-efficient returns well before the end of the tax year…

Tip 1 – Know your limits…

At the start of each financial year, HMRC set a limit on the amount each individual can put into an ISA over the course of the next twelve months, between 6th April and the following 5th April. This is known as the ISA allowance. The ISA allowance for the current tax year (2016/17) stands at £15,240, which is the highest it has ever been. Also remember that this allowance is per person (over the age of 16 for a Cash ISA, and age 18 for an Investment ISA), so a couple can invest up to £30,480 in total this tax year.

Tip 2 – Consider the impact of current ISA savings rates

However, despite this generous ISA allowance it is not all good news, especially for cash ISA savers. This is because the increases to the ISA allowance in recent years has coincided with some of the lowest interest rates on record, so although there is the incentive to save, the deals on offer are far less attractive than the cash-based returns of yester-year. Therefore it is more important than ever to consider the potential impact of this on the overall returns from our capital and what impact this might have.

Tip 3 – Take a risk check

Cash ISAs protect your initial capital (and your initial deposit is normally covered by the Financial Services Compensation Scheme) and offer either a fixed or variable return, whilst Investment ISAs offer the opportunity for higher returns but place your capital at risk. Generally the greater risk you take with your capital, the higher the potential rewards and capital losses are.

Further to the Bank of England’s first base rate cut in seven years back in August, savers have again realised that the likelihood of any significant change to savings rates is very unlikely, and even when interest rates do start to rise there is no guarantee that this will be passed on to savers. Times have definitely changed, and this has resulted in the continued trend of record Investment ISA subscriptions as more and more ISA savers are in the hunt for higher returns. So now would be a good time to review the risk versus reward on offer from both your existing ISAs and any new ISAs you are considering.

Tip 4 – Think about tax free income

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

Tip 5 – Make full use of the ISA’s flexibility

Gone are the days when there was a different limit for Cash ISAs and Investment ISAs, and for the last couple of years there has been no restriction on the amount you can put into either type – so Cash ISA savers have enjoyed the full ISA allowance. This greater flexibility means that you can put the full ISA allowance into a Cash ISA, an Investment ISA, or a mixture of the two in any proportion you choose. This allows ISA savers to give careful consideration to balancing the risk versus reward of their ISA portfolio, whilst remaining safe in the knowledge that the benefits of not paying any tax increases over time – so the more you can put away each year, the more you are likely to benefit.

Tip 6 – Get ahead of the game

Despite it being only half way through the tax year, you should always have half an eye on the 5th April end of tax year deadline. We can all be guilty of putting off until tomorrow those things which could be done today, and we all know how quickly time can fly. Remember, you cannot backdate your allowance so if you don’t use it, you lose it. In addition, the earlier in the tax year you act, the more time your cash has the potential to benefit from the tax efficient returns.

Tip 7 – Think to the future

Needless to say that in the current financial climate, every penny counts – so why pay tax on money that you can protect from the tax man, both now and in the future? Money held in an ISA has the opportunity to build on the tax-efficient returns year on year. If you had invested the maximum into a Cash ISA since they were first introduced in 1999, and you had received 2.5% per year, at the end of this tax year you would have a savings pot of almost £120,000. If you put the maximum into an Investment ISA every year, and that had grown at 6% each year, you would see a lump sum of almost £279,000. Both are sizeable amounts, none of which would be subject to income tax or capital gains tax. Please note that the tax efficiency of ISAs is based on current tax law which is subject to change in the future.

Tip 8 – Always check your current interest rate

Rates change frequently and once you’ve deposited your hard earned cash, your ISA provider knows from experience that some of you are unlikely to get round to switching providers, even if your rate ceases to be competitive. Don’t be that person! Always check the rate you are currently receiving (this should be detailed on each statement) and compare it with a wide range of other options on offer. However good your ISA deal seems at the outset, it is likely that you will need to transfer your ISA fairly frequently in order for it to remain competitive.

Tip 9 – Take advantage of ISA transfers

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

With such low interest rates, much of the increase in the numbers of Investment ISAs in the last couple of years has come from ISA transfers. The upside here is the potential for higher returns whilst the downside is that such returns are not guaranteed and your capital is at risk. Either way, don’t waste your ISA by keeping it in a low paying savings plan or poorly performing investment. There is a wide choice available.

Tip 10 – Maintain your ISA at all costs

Whilst your savings and investments remain in their tax-efficient ISA ‘wrapper’, the benefits become more and more valuable over time as the compound effect of not paying tax each year builds and builds. This is why not only should you try and maximise your ISA allowance each year, but you should also aim to make sure your ISA is the last money you dip into since as soon as you take money out of your ISA it loses these benefits.

Start a new ISA or transfer your current ISA now

The current ISA allowance is available now and many of the savings accounts and investments available through Fair Investment Company are available as new ISAs and accept ISA transfers. So start as you mean to go on, review your options carefully and make sure you benefit from up to a half a year of extra tax-efficient returns by taking action now. This also means one less thing to worry about until 6th April next year…

 

Compare Cash ISAs »

Compare Income ISA investments »

Compare Growth ISA investments »

Compare ISA transfers »

 

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

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

Tax treatment 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 value of investments and income from them can fall as well as rise and you may not get back the full amount invested. Different types of investment carry different levels of risk and may not be suitable for all investors.

Investment Focus: investment returns even if the FTSE falls 50%

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Last update: 27/09/2016

A defensive plan is simply a plan that is designed to provide an investment return even if the stock market fails to rise, or in some circumstances goes down slightly. They are therefore an option for those who would like the opportunity for investment level returns, but who are not confident the market will rise significantly in the medium term. The main feature of the Defensive Growth Plan from Investec is that returns are achieved even if the market has fallen by as much as 50% at the end of the fixed term. Here we take a closer look at the plan in order to find out why it has proved so popular with our investors.

The FTSE

Apart from a handful of days in 2015 and earlier this year, the closing level of the FTSE has been above 6,000 points since the start of 2013, and we have also seen the highest closing level on record (7,104 points), achieved towards the end of April last year. Whilst the FTSE has remained at what are historically high levels, defensive investment plans that offer the potential for investment level returns even if the stock market fails to rise or, in some scenarios, even falls slightly, have been an increasingly popular choice with our new and existing investors.

Defensive investments – a middle ground

Defensive investments attempt to offer investors the best of both worlds, by balancing less of the investment upside, with the opportunity to achieve these returns even if the market fails to rise. This means they are designed for investors who have a neutral or negative outlook of what could happen to the stock market in the coming years, and yet who would still like the opportunity to receive investment level returns. Based on the levels of the FTSE over the last few years, these arguably offer a compelling investment opportunity and Investec’s Defensive Growth Plan is one of our most popular.

In a nutshell

One of the latest additions to Investec’s highly competitive range of structured investment plans, the FTSE 100 Defensive Growth Plan offers a fixed return of 34% at the end of the six year term, provided the value of the FTSE at that point is equal to or higher than 50% of its value at the start of the plan (subject to averaging). Therefore, the FTSE can fall up to 50% and investors would still receive a 34% growth return, along with a full return of their original capital.

If the Index has fallen by more than 50% at the end of the term, no growth will be achieved and your initial capital will be reduced by 1% for each 1% fall, so you could lose some or all of your initial investment.

34% return even if the FTSE falls 50%

This is a strong headline since investors will receive a positive return, even if the FTSE falls 50%. This means that even if you are not confident the FTSE will rise at all, you could still receive a fixed return of 34% unless the FTSE falls by more than 50%.

The ‘defensive’ feature

Since the fixed return on offer is dependent on the performance of the FTSE 100 Index, the defensive element of the plan is an important one to understand. Rather than the Index having to finish higher than its value at the start of the plan, the Index can fall up to 50% and the fixed return of 34% is still paid. Whilst the FTSE continues at historically high levels, this ‘defensive’ feature could be an appealing one.

The use of averaging

Whether the plan pays the 34% fixed return is determined by comparing the value of the FTSE 100 Index at the start of the plan with its value at the end of the plan or the ‘Final Index Level’. When calculating the Final Index Level 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.

Some capital protection from a falling market

Provided the FTSE 100 Index has not fallen by more than 50% at the end of the term, the 34% growth return is paid to you along with a full return of your initial capital. Should the Index have fallen by more than 50%, your initial investment is reduced by 1% for each 1% fall. It is important to note that in this scenario, you would lose at least 50% of your capital.

Since the market can fall up to and including 50% before your initial investment is at risk, the plan offers some capital protection against a falling market. This should be considered in conjunction with the potential return on offer when reviewing the plan’s overall risk versus reward.

Defined risk and defined returns

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

ISA only

Please note that this plan is only available as an ISA. The plan also accepts ISA transfers, from both Cash ISAs and Stocks & Shares ISAs.

Credit ratings and agencies

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

Fitch is one of the main global credit rating agencies and has rated Investec Bank plc with a credit rating of BBB with a stable outlook (awarded 27th October 2015). The ‘BBB’ rating denotes a good credit quality and indicates that expectations of default risk are currently low and that Investec Bank plc’s capacity for payment of its financial commitments is considered to be adequate but adverse business or economic conditions are more likely to impair this capacity. The stable outlook indicates that the rating is not expected to change in the short to medium term, i.e. in the next 6 months to 2 years.

Investec Bank plc profile

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

Fair Investment view

Commenting on the plan, Oliver Roylance-Smith, head of savings and investment at Fair Investment Company Limited, said: “The ability to produce a 34% fixed return even if the market falls by 50% puts this plan in a category of its own, since most other defensive investments still require the FTSE to fall by no more than 20%.The risk versus reward of the plan is known at the outset and is relatively easy to understand, whilst by offering a competitive return even if the FTSE falls by up to half this plan is one of our best selling defensive investments. So for those who are not confident the stock market will continue to rise in the coming years, this plan could make for a compelling opportunity.”

The plan is open for New ISA investments 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 Defensive Growth Plan »

 

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

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

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