Posts Tagged ‘investment isa’

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.

Top 10 reasons to consider kick out investment plans

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As at the end of last week, the range for the closing levels of the FTSE 100 Index over the previous 52 weeks was between 5537.0 and 6941.2, a difference of 1404.2 points. So whilst the UK’s index of leading blue chip companies remains as volatile as ever, there is one type of investment plan that continues to be a popular choice with our investors. Kick out plans offer a defined return for a defined level of risk, which combined with the opportunity to mature early mean they can offer a compelling opportunity in a wide range of investment climates.

Whilst many investors find it harder to commit when markets are seemingly more unpredictable than normal, or as has happened over the last couple of month has been on a relatively steady upwards trajectory, kick out investments remain popular regardless of what is happening to the stock market. With this in mind, we give you our Top 10 reasons to consider a kick out investment plan.

1.  Defined return, defined risk

With kick out plans the potential returns on offer, as well as what needs to happen to provide these returns, is known up front before you commit your capital – a defined return for a defined level of risk. The investor therefore has the benefit of knowing at the outset the conditions that need to be met in order to provide the stated returns. This allows the investor to consider the potential upside in the context of the amount of risk they are taking, which can then be used to make an informed decision about whether to invest or not.

2.  Early maturity

These plans have a maximum fixed term which is normally six years, but the term ‘kick out’ refers to their ability to mature early depending on the movement of the underlying investment (for example, the FTSE 100 Index). The potential to mature early is usually every 12 months after the start of the plan, with the first opportunity normally occurring at the end of year one or year two. If early maturity does occur, investors receive an attractive level of growth along with a full return of their initial capital. This structure has proved popular in all types of market conditions.

3.  Potential for high returns

In addition to the opportunity for early maturity it is no doubt the potential for high growth returns that also contribute to the ongoing popularity of kick out plans. With most plans offering high single digit or even double digit returns for each year invested (not compounded), the opportunity can be a compelling one, especially since what has to happen to the stock market in order to provide these returns is known at the very outset.

4.  Investment returns even if the market stays relatively flat

Most plans offer the ability to kick out at the end of each year provided the level of the underlying investment at that time is higher than its level at the start of the plan. So if you’re not convinced the markets will rise in the future, and yet still wish to achieve investment level returns, this can be a compelling investment story and is perhaps why this type of investment has proved particularly popular while the FTSE remains at what are historically high levels.

Click here to compare kick out investment plans »

5.  Potential to beat the market

Should a kick out plan be designed to mature early provided the level of the FTSE 100 Index (or other underlying investment) at the end of each year is higher than its value at the start of the plan, then provided the Index has gone up, even if this is by a small amount, you will receive the headline return along with a full repayment of your initial capital. In the scenario where the stock market has only risen by a very small amount, then it is likely that this type of investment would have outperformed the market. This may appeal to those investors who are not confident the market will rise significantly in the coming years, which seems to be a more popular sentiment when markets are at historically high levels.

6.  FTSE linked

Many kick out investment plans are linked to the performance of the FTSE 100 Index, which is widely recognised as the proxy benchmark for most investment managers in the UK. Since the historical volatility of this Index 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 and the associated risks involved.

7.  Investment returns even if the market falls slightly

There are also kick out plans that will provide competitive growth returns even if the underlying investment falls slightly, for example up to 10% or 20%. These so called ‘defensive’ kick out plans thereby cater for an even wider range of investor views in terms of what could happen to the stock market in the coming years – the current range of defensive plans offering the potential for high growth returns even if the FTSE falls up to 20%. Again, whilst the FTSE has remained at historically high levels, this has proved to be a popular feature.

Click here to compare defensive kick out investment plans »

8.  Some capital protection from a falling market

Your original capital is returned if the plan kicks out but should this fail to occur, and no growth is achieved, typically your capital will be returned provided the underlying investment has not fallen below a certain amount. This amount is normally a percentage of its value at the start of the plan, usually in the region of 40% or 50%. To put this into context, for a plan which offers a return of capital unless the FTSE falls by more than 50%, then based on last Friday’s closing value of 6838.10, the Index would have to fall to a closing level of 3419.05 before your capital would be at risk, a level not seen since early 2003. However, if it does fall below 50% you could lose some or all of your initial capital. Please also remember that past performance is not a guide to future performance.

9.  No annual management charges

Unlike investment funds, the charges for creating and managing kick out plans are already taken into account so there are no annual management charges which come out of the headline return. The costs associated with the management of funds happens each and every year (in both actively managed and tracker funds), which may help to explain the number of funds which fail to outperform the FTSE 100 Index or other benchmark, especially over a five or six year period. This ongoing cost is not a feature of kick out plans. Most kick out investments will though have an initial charge, normally up to a maximum of 3%.

10. A disciplined approach

Finally, the mechanics of these investments removes the need for the investor to worry about when to come out of the market since the decision is made for them by the pre-determined market conditions required for the plan to mature or it simply comes to the end of the plan term. Should the plan mature, the investor then has the opportunity to reassess their options based on the market conditions at that time.

ISA friendly

All of the kick out plans offered through Fair Investment Company are available to individuals as a New ISA up to the current limit of £15,240 (2016/17 tax year) and will also accept transfers from both Cash ISAs and Stocks & Shares ISAs (as well as non-ISA investments). Since these investments are normally offered for a limited period, always note any New ISA or ISA transfer application deadlines.

Understand counterparty risk

One of the main differences with structured investment plans when compared with other types of investments, such as funds or investment trusts, is that your capital is used to purchase securities and it is these securities which are designed to produce the stated returns on offer. These securities are normally issued by a bank which means that your investment is held with a single institution rather than split between a number of companies, as it would be within an investment fund. This means the risk of the bank becoming insolvent and therefore unable to repay your original investment along with any stated returns becomes a factor to consider – this is known as counterparty risk. Since the counterparty is usually a bank, the credit rating is normally available so a view can be taken on the potential risk involved. There are also plans which aim to reduce this counterparty risk by spreading it across a number of institutions.

Latest selections

Kick out investment plans offer the potential for high returns balanced with conditional capital protection, with our latest selections offering a wide range of counterparties, collateralised versions as well as ‘defensive’ plans giving investors plenty of choice. We also have a number of kick out investments for our existing customers and those more experienced investors where you will find a range of dual Index plans which offer a higher risk versus reward, with current headline returns of up to 14% after 12 months.

 

Click here for our latest kick out investment plans »

Click here for our latest defensive kick out investments »

Click here for our experienced investor 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. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.

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

Kick out investment plans 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. The past performance of the FTSE 100 Index is not a guide to its future performance.

Fixed returns – our round up of the latest fixed rate options

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Last updated: 30/08/2016

For those who want to know exactly how much they will receive, when and for how long, the traditional deposit-based fixed rate bond has long been one of the safest and most popular choices for many. But with interest rates on savings remaining at record lows, and with the possibility of this getting even or fixed worse as we get to grips with the post-Brexit environment, many more are starting to consider the wider range of products offering a fixed return. So whether it is the more traditional fixed rate bond rate Cash ISA, or you are looking to put your capital at risk in return for a higher fixed income, we take a look at a number of options as well as give you a round-up of the latest offerings.

Short term: up to 2 years

Fixed rate bonds

For those looking at the shortest fixed terms, Habib Bank Zurich offer a 6 Month Fixed Rate Deposit paying 0.80% AER, whilst they also offer a higher rate of 1.10% AER if you can tie your money up for a year, with their 12 Month Fixed Rate Deposit. Both products have a relatively low minimum of £1,000 and your deposit is eligible for the Financial Services Compensation Scheme (FSCS). Interest is paid at maturity and as is standard with most fixed term deposits, no withdrawals are permitted during the term of the bond.

Bank of Cyprus UK offer a top rate of 1.40% AER if you fix for 2 years, although they have a slightly higher minimum of £10,000 whereas Habib Bank will offer 1.35% AER with their 24 Month Fixed Rate Deposit but with a lower minimum of £1,000. Both pay interest at maturity and eligible deposits are covered by the UK FSCS.

Fixed rate Cash ISA

Bank of Cyprus UK offer a 2 Year Fixed Rate Cash ISA paying 1.20% AER, and only marginally higher at 1.30% AER if your fix for 3 years, both with a low minimum deposit of just £500. These accounts are available to anyone aged 16 or over and interest is paid annually. ISA transfers are permitted and eligible deposits are covered by the UK FSCS.

Medium term: 3 to 4 years

Fixed rate bonds

In the three to four year space, our top deal comes again from Bank of Cyprus UK with their 3 Year Fixed Rate paying 1.50% AER. The minimum deposit is £10,000 and interest is paid on maturity. For those looking for a lower minimum or more frequent payment of interest, AXIS Bank UK’s 3 Year Fixed Term Deposit also pays 1.50% AER but with a £1,000 minimum (£200,000 maximum) and offers monthly, quarterly, annually or at maturity interest options. No withdrawals are permitted from either account.

Fixed rate Cash ISA

Bank of Cyprus remain very competitive in the fixed rate Cash ISA market with their 3 Year Fixed Rate Cash ISA currently paying 1.30% AER and with a respectable minimum deposit of just £500. This account also allows you to transfer in existing ISAs from other providers.

Longer term: 5 years +

Fixed rate bonds

Although you are still rewarded with higher savings rates in return for locking your money away for longer, the interest rate gap between short term and longer term is also at record lows. For those prepared to commit their savings for five years, Vanquis Bank’s 5 Year Fixed Rate Bond is paying 2.20% AER. The minimum deposit is £1,000 and interest can be paid monthly or annually.

Savings rates at record lows…

Unfortunately the UK’s decision to leave the EU has had an impact on what were already record low interest rates on offer. Combined with the talk of the Bank of England potentially cutting the Bank Rate for the first time since 2009, and the outlook for many who rely on more traditional fixed term deposits is bleak to say the least.

To put this into context, 12 months ago we wrote about a 1 year fixed rate paying 1.90% AER, a 2 year paying 2.38% AER and a 3 year paying 2.50% AER . We are now looking at 1.25%, 1.60% and 1.65% AERs respectively. These are significant reductions of up to 34% on what were already historically low returns, with the biggest falls being felt at the longer term end of the market. This is why more and more are looking at a wider range of options, which inevitably leads one to consider investments.

Fixed income investments

The income from collective investments (such as funds) invariably comes from investing in a number of equities, bonds and commercial properties, which provide income in the form of dividends, interest and rental yields. Combined with the fluctuation in value of the underlying asset, be this a share, bond or property, then by its very nature the value is neither fixed nor guaranteed, and so such investments normally only offer a variable income.

Fixed income, fixed term

Investors have therefore always struggled to find an investment that actually pays a fixed income, which perhaps partly helps to explain why the Enhanced Income Plan from Investec has been our most popular income investment. The plan offers a fixed income, which is paid to you regardless of the performance of the stock market, whilst the investment also has a fixed term, so you know exactly how much you will be paid and for how long. The current issue offers 5.04% fixed income each year, which is paid as 0.42% each month.

This investment includes conditional capital protection which means that your initial capital is retuned in full unless the FTSE 100 Index falls by more than 50% during the plan term. If it does, and also finishes the fixed term lower than its value at the start of the plan, your initial investment will be reduced by 1% for every 1% fall, so you could lose some or all of your initial investment.

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

Cash versus investment

The most important difference between the fixed rate bond and the fixed income investment is that with the former, your capital is treated as a deposit and is therefore protected and returned to you at the end of the term, subject to the bank in question remaining solvent. An investment into the Enhanced Income Plan is used to purchase securities issued by Investec Bank plc, which means the bank’s ability to meet and repay their financial obligations is equally an important consideration. However, as highlighted above the return of your capital is also dependent on the performance of the FTSE 100 Index, therefore your capital is not protected and is at risk.

Peer to Peer

One particular area where we have seen a significant rise in the number of the offerings is Peer to Peer lending, some of which offer fixed rates of interest. In simple terms, peer to peer lenders match people who want to earn interest on their money with people who want to borrow money. This means that both lenders and borrowers can benefit from interest rates that are better than those found on the high street, whether from conventional fixed rate accounts or from bank loans.

Fixed interest

One of the earliest and perhaps best known Peer to Peer lenders offering fixed interest is Wellesley & Co. Here your investment is combined with funds from other investors and then lent out to individuals and businesses investing in property – so every loan is secured against tangible assets such as residential or commercial property. They then use the interest paid by them to pay competitive rates to investors. Wellesley have lent out over £336m to date.

The current rates (based on receiving monthly interest) are 2.95%, 3.30% and 3.70% over 1, 2 and 3 years respectively. You also have the option to receive interest at maturity, offering up to 3.75% annual interest. Compared to deposit-based fixed rate bonds these headline rates are attractive however these are capital at risk investments, and so you could lose some or all of your initial investment and interest payments are no guaranteed if the borrower fails to repay the loan. Peer to Peer lending is also not covered by the Financial Services Compensation Scheme.

Risk v reward

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

Our best three and five year fixed rates are currently offering 1.85% and 2.20% respectively. By accepting risk to your capital, Wellesley would offer fixed interest of 3.70% over three years whilst the Investec plan offers 5.04% over six years, thereby doubling your fixed return over three year and increasing it by 2.84% a year over the longer term. Once you have understood how each plan works, the decision then is whether you are comfortable with putting your capital at risk in return for the higher fixed returns on offer.

 

Compare fixed rate bonds »

Compare fixed rate Cash ISAs »

Compare Peer to Peer investments »

Find out more about the Investec Enhanced Income Plan »

 

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

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

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

Peer to peer savings accounts are not the same as normal savings accounts so you need to consider the features before you invest. Investment through Wellesley & Co involves lending to individuals or companies and therefore your capital is at risk and interest payments are not guaranteed if the borrower fails to repay the loan. In that event, Wellesley Finance would attempt to recover the funds outstanding. However, such security arrangements do not guarantee full return of capital and income. Peer-to-Peer lending is not covered by the Financial Services Compensation Scheme.

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

BREXIT and the FTSE: defensive investment plans rise to the challenge

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Last updated: 11/10/2016

The recent decision made by the UK to leave the European Union has unsurprisingly forced many investors to reconsider their options, especially since there remains so much uncertainty around the potential impact of this decision on our economic growth and stability. Regardless of whether you were for remaining or leaving, taking a view on what might happen to the FTSE in the short to medium term is certainly something on the minds of many. With this in mind, we take a look at a selection of defensive investments to find out exactly what they have to offer and how the risk versus reward might be appealing for those who are concerned about the impact Brexit may have on future investment opportunities.

What is a defensive plan?

Defensive plans offer the potential for investment level returns, even if the stock market goes down, in some cases by up to 50%. Partly as a result of the FTSE continuing at historically high levels in recent years, there has been an increase in the number of plans that offer a competitive return even in the event that the market fails to rise. These are commonly known as defensive investment plans and for those who are not confident that the market will continue to rise in the medium term, they have become an increasingly popular investment opportunity.

Different types

Although each plan has its own features, collectively they are growth investments which offer the potential for either a fixed return for every year invested (not compounded), or a fixed return at the end of the full term, both of which are dependent on the performance of the underlying investment, usually the FTSE 100 Index. Each of these investments will be structured to offer a defined return for a defined level of risk, and as such you will know from the outset exactly what must happen in order to receive the stated returns on offer.

A middle ground

Defensive investments therefore try and offer the best of both worlds by offering the potential for investment level returns, even if the underlying investment only rises by a small amount, stays flat, or goes down slightly. 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 the potential for investment level returns. Here is a selection of the current range of defensive plans on offer:

Returns even if the FTSE falls up to 10%

If the FTSE had fallen by 5% in 3 years time and yet you still received 24.0% growth plus a return of your initial capital, would you consider this a good investment? The Investec FTSE 100 Defensive Kick Out Plan has a maximum term of six years but will kick out (mature early) at the end of each year from year 3 onwards, provided the FTSE is above 90% of its value at the start of the plan. If it is, then you will receive 8.0% for each year invested (not compounded). If the Index has fallen by 10% or more, your investment continues.

If the plan does not produce a return, your initial capital is returned in full unless the Index has fallen by 50% or more, measured at the end of the plan term. If it has, your capital will be reduced by 1% for each 1% fall and so you could lose some or all of your initial investment.

Returns even if the FTSE falls up to 20%

Our next defensive plan is another kick out plan, the FTSE Defensive Kick Out from Focus, and will kick out and return your initial investment along with 7.15% for each year invested (not compounded) provided the FTSE 100 is at the required level at the end of each year, from year 2 onwards. The required level is 100% of its starting value at the end of year two, reducing by 5% in each of the following years down to 80% in the final year. So the FTSE could fall up to 20% and you would still receive 7%+ returns on your investment.

If the Index closes below the required level each year, no growth return will be paid and your initial capital will be returned in full unless the FTSE has fallen by more than 40% at the end of the term. If it has, your initial investment would be reduced by 1% for each 1% fall, and so you could lose some or all of your investment.

Returns even if the FTSE falls up to 50%

Our final defensive investment is the Investec FTSE 100 Defensive Growth Plan, which offers a fixed return of 34% at the end of the investment term provided the value of the FTSE is more 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. The 34% return is equivalent to 5.0% compound annual growth.

If the Index has fallen by 50% or more 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.

Fair Investment view

Commenting on defensive investment plans, Oliver Roylance-Smith, head of savings and investments at Fair Investment Company said: “Despite the recent volatility in the FTSE the Index currently remains at historically high levels, but for those investors who are not confident that the market will rise in the medium term, knowing that you can achieve investment returns regardless of whether the market goes up, remains flat, or even falls slightly, could be an attractive opportunity.”

He continued: “Markets don’t like uncertainty, and so it is understandable that investors are going to consider, perhaps more than normal, the potential impact of leaving the EU on the FTSE in the medium term. Since the market can fall up to 40% before your initial investment is at risk, defensive plans also offer some capital protection against a falling market, and allow potential investors to consider the risk versus reward of the plan prior to investing, which could be appealing in the current investment climate.”

 

More information on the Investec FTSE 100 Defensive Kick Out Plan »

More information on the Focus FTSE Defensive Kick Out Plan »

More information on the Investec FTSE Defensive Growth Plan (ISA only) »

Click here to compare defensive 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.

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.

These 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 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: Investec Enhanced Kick Out Plan

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Last updated: 16/08/2016

A kick out investment is a fixed term investment plan that has the ability to mature early or ‘kick out’ each year, providing a fixed growth return along with a full repayment of your initial capital. Since these plans can produce competitive returns even if the market stays relatively flat, these investments seem to be popular in a wide range of market conditions. The current issue of the Enhanced Kick Out Plan from Investec offers the highest rate of any kick out investment based on the performance of the FTSE 100 Index, which perhaps helps to explain why it is one of our most popular investments with both our existing customers as well as new investors.

Here we take a closer look at the main features of 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.

In a nutshell

The plan will return 9.50% per year (not compounded) provided the value of the FTSE 100 Index at the end of each year is higher than its value at the start of the plan – so although the FTSE does have to rise, this only needs to be by a single point. Should the plan kick out, your initial investment is also returned in full. If the plan does not kick out, your initial capital is at risk if the Index falls by more than 50% during the term, and also finishes below its starting value, in which case your capital will be reduced by 1% for each 1% fall.

Early maturity

The term ‘kick out’ refers to the ability of the investment plan to mature early depending on the performance of the FTSE 100 Index. Plans such as these that have the ability to mature early and provide a competitive level of growth have proved popular in recent years with a range of investors. For example, the fact that this plan can achieve investment level returns even if the market stays relatively flat means that investors have the potential to outperform the market. This scenario may appeal to those who are not confident the market will rise strongly in the coming years.

The potential for high returns

In addition to the opportunity for early maturity it is no doubt the potential for double digit returns that have added to this plan’s popularity. The headline return on offer from the current issue is 9.50% annual growth. The return is not compounded, but will be paid to you for each year the investment has been in place, thereby offering compelling returns even if the FTSE stays relatively flat or only rises by a small amount. If the plan does kick out, your initial capital is also returned to you in full along with the growth payment.

Some capital protection from a falling market

The Enhanced Kick Out Plan also includes what is known as conditional capital protection, which means that if the plan fails to kick out by the end of the six year term, the return of your initial investment is conditional on the FTSE not falling by more than 50% of its starting value. If the FTSE stays within this 50% barrier throughout your investment then you will receive a full return of your original investment.

If the Index falls more than 50%, and also ends the term at a level which is lower than its value at the start of the plan, your initial investment will be reduced by 1% for every 1% fall. In this situation there is a risk that you could lose some or all of your capital.

Defined risk and defined returns

Another feature of this investment 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 achieve the growth returns on offer, as well as a return of your initial investment.

Risk versus reward

The principle of risk versus reward inevitably leads to putting your capital at risk in the search for potentially higher returns. A good benchmark for assessing any investment is to compare what you could get from a fixed rate deposit over a similar timeframe, and then consider whether you are comfortable with the additional risk you are taking in order to receive the potential for a higher return.

Leading longer term fixed rates are currently offering around 2.20% and so by accepting risk to your capital, you are potentially increasing your returns by around 7.30% a year if the plan matures early or produces a return in the final year. The decision is therefore whether you are comfortable with putting your capital at risk and the conditional capital protection offered, in order to have the potential for this level of growth.

Credit ratings and agencies

Another important feature of this plan is that your investment is used to purchase securities issued by Investec Bank plc and which are designed to produce the stated returns on offer based on the performance of the FTSE. This means that Investec’s ability to meet their financial obligations becomes an important consideration. Fitch is one of main global credit rating agencies and Investec Bank plc has 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, although adverse business or economic conditions are more likely to impact than a bank with a higher rating. 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.

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 have approximately 8,500 employees and provide a diverse range of financial products and services, specialising in a number of areas particularly within the banking sector. They are also a market leading provider of investment plans and structured deposits.

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 limit of £15,240 (2016/17 tax year), 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: “One of the main reasons investors consider kick out investments is that they can offer the potential for high growth and a full return of capital in as little as 12 months, even if the stock market stays relatively flat or only rises by a small amount. In both of these scenarios, this type of investment offers the potential to beat the market.”

He continued: “Investec’s plan is our most popular kick out investment, offering the potential to kick out at the end of each year and achieve 10.0% growth for each year invested. So depending on your view of what will happen to the FTSE in the coming years, the potential for double digit growth along with a full return of capital, could be considered a good return on your investment in the current 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 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.

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.

FTSE income plans compared – offering up to 7.0% income

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Income investments are consistently our most commonly requested investment plans, with many also choosing to use their ISA allowance in order to receive the income tax free. It is therefore perhaps not surprising that we have seen an increase in the number of fixed term income investment plans available in the market. To this end, we compare three investment plans which between them offer up to 7% income, along with some capital protection against a falling stock market.

Income, income, everywhere

The need for income is one of the most common demands put on our capital, and with continued pressure from record low savings rates and uncertainty around future dividend yields, the defined return and defined risk from structured investment plans have meant these have become increasingly more popular with income seekers.

Features in common

The income plans under the spotlight here are the FTSE Dual Option Contingent Income Plan from Meteor, the FTSE Quarterly Contingent Income Plan from Focus and the FTSE Range Income Plan from Mariana. All three plans have a number of features in common, including:

Based on the performance of the FTSE 100 Index

Both the level of income and the return of your initial capital for all of these plans is dependent on the performance of the FTSE 100 Index (‘the Index’ or ‘the FTSE’). The FTSE is widely recognised as the proxy benchmark for most investment managers, especially those investing predominantly in UK equities. Since the historical volatility is familiar to many investors, they are in a better position to consider the pros and cons of the plan within the context of the underlying investment and the potential income on offer.

Fixed term

All of the plans have a fixed term, and although you do have the option to withdraw your money early, the plans are designed to be held for the full term and early withdrawal could result in you getting back less than you invested. The fixed term may well appeal to those who need to know exactly how long their capital will be tied up for and can benefit from planning around this.

The Focus and Meteor plans also include the ability to mature early or ‘kick out’, which will occur if the Index has gone up by 5% or more at the end of each quarter, from year 2 onwards. If it does, a final income payment will be made along with a full return of your original capital, which may appeal to those who would like to re-consider their investment options should the FTSE rise.

Quarterly income

All three plans offer a quarterly payment frequency, and so investors have a regular opportunity to receive an income payment. Quarterly payments are a popular feature and could be attractive if you are looking for the opportunity to supplement existing income.

Up to 7.0% annual income

These plans are designed for investors looking for a high level of income, with a maximum potential income of between 5.4% and 7.0%. The main difference between the three plans is the level the FTSE has to be in order for the income to be paid each quarter. So depending on what you think might happen to the FTSE in the coming years, these plans cater for a wide range of investor views by covering a number of eventualities.

7.0% income if the FTSE does not fall more than 20%

Option 2 of the Meteor Dual Option Contingent Income Plan offers a quarterly payment of 1.75% provided the FTSE at the end of each quarter has not fallen by more than 20% from its value at the start of the plan.

6.50 % income if the FTSE does not fall more than 25%

The FTSE Quarterly Contingent Income Plan from Focus offers up to 6.50% each year, with a 1.625% income payment made at the end of each quarter provided the FTSE 100 Index closes at or above 75% of its value at the start of the plan – so it can fall up to 25% and you would still receive an income payment.

5.40% income if the FTSE does not fall more than 40%

Option 1 of Meteor’s Dual Option Contingent Income Plan offers a quarterly payment of 1.35% provided the FTSE at the end of each quarter has not fallen by more than 40% from its value at the start of the plan.

7.0% income provided the FTSE stays within an increasing range

The FTSE Range Income Plan pays 1.75% at the end of each quarter, provided the FTSE 100 Index closes between an upper and lower range based on its level at the start of the plan. This range starts at +/- 12% at the end of quarter one, and then increases by +/-0.75% each quarter finishing at a range of +/- 29.25% in the final quarter.

With all plans, if the FTSE falls outside of the level required at the end of each quarter, no income will be paid for that quarter.

Conditional capital protection

Another feature of these plans, which sets them apart from other capital at risk income investments, is the conditional capital protection. This means that your initial capital is returned in full at the end of the term provided the FTSE 100 Index has not fallen by 40% or more below its value at the start of the plan. This is measured at the end of the investment only and offers investors some capital protection against a falling stock market.

If the FTSE has fallen below this level, your original capital will be reduced by the same percentage as the fall in the Index. In this situation at least 40% of your initial investment would be lost, so you should understand that your capital is at risk and that you could lose some or all of your investment.

Risk versus reward

With savings rates continuing at record lows, the principle of risk versus reward means that the search for potentially higher income returns leads us to consider putting our capital at risk. A good benchmark for assessing an investment therefore is to compare what you could get from a fixed rate deposit over a similar timeframe, and then consider whether you are comfortable with the additional risk to your income and capital.

Anything around 2.75% is currently a top savings rate in the longer term fixed rate bond market and so by accepting risk to your capital, you have the opportunity to increase your income by up to 4.25% a year, depending on which income plan you invest in. The decision is therefore whether you are comfortable with putting your capital at risk and the conditional capital protection offered, in return for a potentially higher level of income.

Credit ratings and agencies

With structured investment plans your capital is used to purchase securities, normally issued by a bank (the counterparty), which are designed to produce the stated returns. This means their ability to be able to meet their financial obligations become an important consideration. This is known as credit risk and means that in the event of the counterparty going into liquidation, you could lose future income returns and some or all of your initial investment. These plans are also not covered by the Financial Services Compensation Scheme for default alone.

One accepted method of determining credit worthiness of a company is to look at credit ratings, issued and periodcially reviewed by independent companies known as ratings agencies. Standard and Poor’s is a leading credit agency and has attributed the following ratings to the counterparties used in the above plans (as at the start of their offer periods):

Plan Counterparty S&P rating
Focus Credit Suisse ‘A’ rating with a stable outlook
Mariana Natixis ‘A’ rating with a stable outlook
Meteor Natixis ‘A’ rating with a stable outlook

The ‘A’ rating denotes a strong capacity to meet its financial commitments and repay debts, whilst the ‘stable outlook’ indicates that the rating is not likely to change in the short to medium term (between 6 months and 2 years).

Fair Investment conclusion

Commenting on the current range of FTSE based income plans, head of savings and investments at Fair Investment Company Oliver Roylance-Smith said: “By combining the potential for a high level of income with some capital protection should the stock market fall, these plans could offer a compelling balance of risk versus reward when compared to other income alternatives available in the market.”

He continued: “With the opportunity for up to 7.0%, the headline yields are attractive for plans based on the performance of the FTSE whilst the cap on any income is balanced with the conditional capital protection included. Depending on what you think might happen to the FTSE in the coming years, there should be something here for every investor.”

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

Click here for more information on the Focus FTSE Quarterly Contingent Income Plan »

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

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

Our 10 best last minute ISA ideas

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With just one week to go until the deadline for using your 2015/16 ISA allowance of £15,240, this really is your last opportunity to make use of this valuable tax break and help protect your returns from the taxman. If you are yet to make use of some or all of your allowance, here we give you our 10 best last minute ISA ideas. Including both Cash ISA and Investment ISAs, as well as opportunities where you can include your 2016/17 ISA allowance (£15,240) as well, there should be something for everyone.

1.   Our best-selling Investment ISA

For those looking for growth but also with the opportunity to mature early or ‘kick out’ each year, the Enhanced Kick Out Plan offers 11.50% 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). Capital is at risk if the FTSE falls by more than 50%. This is our best selling Investment ISA during the current ISA season and also features a Double ISA option.  Click here for more information »

2.   Fixed income Investment ISA

The Enhanced Income Plan is a regular ISA season top seller, paying a fixed income of 5.28% per year regardless of what happens to the stock market. The plan also has monthly income payments, so you know exactly how much you will paid, when, and for how long. Capital is at risk if the FTSE 100 Index falls by more than 50%. This plan features a Double ISA option.  Click here for more information »

3.   Self-select Investment ISA top seller

Barclays Stockbrokers has been voted ‘Best Execution-Only Broker’ at the Shares Awards 2015 whilst they have also been voted Self Select ISA Provider of the Year 2016 at the ADVFN International Financial Awards. Their investment ISA offers over 2,000 funds as well as a wide range of other investments including shares, exchange traded funds, investment trust, gilts and bonds.  Click here for more information »

4.   Defensive Investment ISA best seller

The Defensive Growth Plan from Investec offers a fixed return of 36% (equivalent to 5.25% 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. This plan also features a Double ISA option.  Click here for more information »

5.   Income Investment ISA top seller

The FTSE Quarterly Contingent Income Plan pays a quarterly income of 1.875% for each quarter the FTSE 100 Index does not end less than 25% below its value at the start of the plan. So even if the FTSE falls up to 25% each quarter, you would still achieve 7.50% annual income. Capital is at risk if the FTSE has fallen by more than 40% at the end of the investment term. This plan features a Double ISA option.  Click here for more information »

6.   Managed and regular saver Investment ISA

The Standard Life Stocks & Shares ISA includes their ‘Easy Option ISA’, which allows investors to invest in one of their MyFolio Managed Funds run by a team of experts at Standard Life Investment Ltd. You can manage your account online and your ISA can be opened from just £50 per month with transfers from other ISAs permitted.  Click here for more information »

7.   Defensive supertracker Investment ISA

Defensive plans remain popular and the FTSE Defensive Supertracker from Meteor tracks any growth in the FTSE during the plan term and then trebles it, subject to a maximum growth return of 60%. The plan is defensive since the growth is based on any rise above 80% of the FTSE’s value at the start of the plan – that’s a 60% return even if the FTSE ends the same. Capital is at risk if the FTSE has fallen by more than 40%. This plan also features a Double ISA option.  Click here for more information »

8.   Instant access Cash ISA

For savers looking to combine a top interest rate with access to their money at all times, the Easy Access ISA from AA offers a simple, bonus-free savings rate of 1.25% AER variable. The account can be opened and managed online with just £100 and there are unlimited free withdrawals. The account also accepts transfers in. There are no penalties, notice periods or tiered interest rates, whilst interest is calculated daily and paid in March each year.  Click here for more information »

9.   Fixed rate Cash ISA

If you are looking for the reassurance of a fixed savings rate and don’t need access for your money for at least a year, fixed rate Cash ISAs are a popular option. The 1 Year Fixed Rate Cash ISA from AA currently offers 1.35% AER fixed and can be opened with a single deposit of £500. The account also accepts transfers in. Withdrawals are not permitted and 90 days loss of interest will apply if you access your money during the fixed term. You can apply and manage your account online whilst interest is calculated daily and paid at the end of your 12 month fixed rate period.  Click here for more information »

10.  Help to Buy Cash ISA

First time buyers can benefit from a 25% bonus of their Help to Buy ISA balance with a minimum bonus of £400 (so you need at least £1,600 saved) and a maximum of £3,000 (on a savings balance of £12,000) although you can have more saved. That means for every £200 you save HM Government will add £50, up to a maximum of £3,000. Eligibility criteria and Help to Buy: ISA Scheme Rules apply. Also note that any funds withdrawn before closing the account will not count towards the Government Bonus. The Nationwide Help to Buy: ISA is currently offering 2.00% AER variable with a minimum opening balance of £1.  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 »

 

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.