While the Bank of England’s decision to keep the base rate at 0.5% for the 11th consecutive month is unarguably the only realistic option, 76% of investors have had enough of dismal savings rates, saying they are not interested in investing in cash.
Research by independent financial service providers, Fair Investment Company has found more than three quarters of investors would not consider investing in cash in the current climate, preferring to put their money into riskier investment options in the hope of better returns.
“With the average cash ISA rate at just 2.12 % and easy access savings accounts paying out just 0.76% on average (Moneyfacts), it is no wonder that most people looking to invest are steering away from cash in order to get better returns,” comments Nick Scarrett, head of pensions and investments at Fair Investment Company.
When asked what type of investment product they were most likely to opt for, only 24% of respondents said cash. The remaining 76% said they would look at riskier assets, with almost half (49%) of those respondents choosing structured products, nearly a quarter (24%) equity funds, while a fifth (20%) said they would opt for corporate bond funds as their preferred investment type.
“Nearly half of investors are looking at structured products over any other asset class,” explains Julie Smith, head of structured products research at Fair Investment Company, “and there are a number of reasons why this might be.
“Structured products are basically fixed term investments – usually of between 3 and 6 years - that aim to beat cash returns while also providing some level of capital protection. They are popular because they offer a ‘halfway house’ between low-risk cash savings and full risk stock-market investing.”
There are a number of structured products on the market; for the more cautious investor there are capital protected structured products, which protect your initial investment no matter what happens in the markets. For those willing to take more risk there are capital at risk structured products which give a lesser level of protection, but potentially a much higher return.
Investors can also choose between growth plans and income plans, and, unlike other investments, charges are usually factored into the product terms at outset so investors don’t need to worry about ongoing costs eating into their returns.
The survey found that of those who would choose structured products, 58% said it was for the capital protection element that the asset class provides and 38% said it was for income.
“Structured products have received some bad press over the years, and obviously, like any investment type, there are good and bad products,” explains Julie.
“Structured products are not suitable for everyone and anyone considering structures should make sure they understand the product and the risks involved before making a decision. But with the financial climate as it is, and the base rate unlikely to increase before the year is out, a diversified investment portfolio including some structured products is certainly worth considering.”