2014’s Plans of the Year
If you are already starting to plan your 2015, a good place to start is to look back over the previous year and see what proved popular with savers and investors. To this end, we start the New Year with a round up of our Plans of the Year for 2014 to give you the opportunity to know what has proved popular over the last 12 months with both new and existing Fair Investment customers.
Six categories
The plans featured are spread across six different categories, two capital protected savings plans and four investment plans. By covering traditional fixed rates bonds, Financial Service Compensation Scheme (FSCS) protected savings alternatives along with income and growth investments, this annual review aims to cover a range of options for both savers and investors, whether seeking either income or growth. The 2014 categories are as follows:
- Fixed Rate Bond Plan of the Year
- Savings Alternative Plan of the Year
- Income Investment Plan of the Year
- Growth Investment Plan of the Year
- Defensive Investment Plan of the Year
- Kick Out Investment Plan of the Year
Structured plans
Whether it is the potential for higher returns combined with FSCS deposit scheme protection on offer from structured deposit plans, or the conditional capital protection combined with the potential for higher returns from our selection of income and growth investments, structured plans continue to be popular with our customers. In either case, the defined return and defined risk on offer from these fixed term plans has had an obvious appeal with both savers and investors, which is why five of our six categories are structured plans.
Winner & Runner Up
In addition to the winner for each category, where there has been particularly strong competition we have also awarded a runner up spot. Please note since the best plans are often only open for a relatively short period or can have their interest rate changed quickly, sometimes without notice, each plan selected must either be available now, or we are shortly expecting to launch a new version. So make sure you check for any application deadlines.
Our view
Finally, we also give you our in-house view of each plan, brought to you by our Head of Savings and Investments, Oliver Roylance-Smith, to help explain why the plan has been selected, whether this is a particular feature of the plan, the return on offer or the balance of risk reward when compared to its competitors.
Fixed Rate Bond Plan of the Year
Winner – 5 year bond paying up to 3.30% AER
For those wanting access to higher fixed rates from their savings and who are prepared to tie up their money in order to do so, the Investec 5 Year Step Up Bond currently pays 2.8% AER interest for the first three years, followed by 3.3% AER for the final two years. No withdrawals are permitted during the term of the plan and interest will be paid annually into your nominated account. You can apply easily and quickly online and access to account information is via online and telephone banking.
Fair Investment view: “The fixed rates on offer from the 5 Year Step Up Bond equate to 3.0% average AER placing it firmly in the top tier of longer term fixed rates. With the higher rate paid in the last two years, this may also appeal to those who might be waiting for a rate rise as well as those who are worried about potential increases to inflation. Whilst the outlook for a sharp rise to interest rates remains bleak, there may not be a better time to secure a longer term fixed rate”
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Savings Alternative Plan of the Year
Winner – potential 4.5% p.a. growth
Aimed at savers who are prepared to sacrifice a fixed rate in exchange for the potential for higher returns, the Kick Out Deposit Plan from Investec offers a potential 4.5% per year (not compounded) and will mature early or ‘kick out’ provided the value of the FTSE 100 at the end of each year from year 3 onwards, is higher than its value at the start of the plan. That’s a potential 13.5% after three years. If the Index is lower on all of these dates you will only receive a return of your initial deposit.
Fair Investment view: “Just three years ago you could receive 3.15% on an instant access account, a rate you can’t get now even if you are prepared to commit to a five year fixed rate bond. As savers begin to realise that even if the Bank of England base rate does start to increase, the likelihood of the banks passing this on to savings rates is minimal, alternatives are become increasingly more popular.”
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Income Investment Plan of the Year
Winner – 5.28% fixed income
The Enhanced Income Plan from Investec was our most popular income investment in 2014 and has already started the New Year with strongly. The current issue pays a fixed annual income of 5.28% with payments made monthly (0.44% each month), regardless of what happens to the FTSE 100 Index. At the end of the plan, your original capital is returned in full unless the FTSE falls by more than 50%. If it does, and the Index also finishes below its starting level then your original capital will be reduced by 1% for each 1% fall, so you could lose some or all of your original investment.
Fair Investment view: “Investors know exactly how much they will be paid, when, and for how long, whilst also having some capital protection against a falling stock market. These features combine to offer a compelling balance of risk versus reward and since the plan is also open to New ISAs and accepts ISA transfers, the possibility of a high level of fixed and regular tax free income is understandably attractive in the current climate.”
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Runner Up – up to 6.75% annual income
The Income Accumulator Plan from Morgan Stanley only relaunched towards the end of last but proved immediately popular and was a close second to Investec’s best seller. The plan offers up to 6.75% each year with income being accrued for each week the FTSE 100 Index closes between 5,000 and 8,000 points – if it closes outside of this range, no income will be added for that week. All accrued income is then paid out to you at the end of each quarter.
Fair Investment view: “The quarterly payment frequency makes it comparable with most UK equity income funds and it you agree the FTSE 100 is likely to remain between 5,000 and 8,000 points in the coming years, this could be an attractive opportunity in the hunt for high income. The plan also offers some capital protection against a falling stock market since your initial investment is returned in full unless the FTSE falls below 4,000 points, measured at the end of the fixed term only. However, if it has fallen below this level, capital will be reduced by 1% for each 1% fall and so you could lose some or all of your initial investment.”
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Growth Investment Plan of the Year
Winner – 10x any rise in the FTSE, 60% cap
The UK Growth Plan from Societe Generale brings with it an attractive headline of 10 times any rise in the FTSE 100 Index over the term of the plan, subject to a maximum growth payment of 60% plus a return of your capital. For example, if the FTSE ends 2% higher, you receive 20%, 5% higher and you would receive a 50% return. If the FTSE is the same or lower at the end of the term, no growth return is paid and your initial investment is retuned in full unless the Index has fallen by 40% or more, measured on the last day of the investment only. 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.
Fair Investment view: “Not only does this investment offer the potential for high returns, it could also significantly outperform the market should the FTSE 100 only rise by a small amount. So for investors who are not convinced the total return from the FTSE will be more than 60% in the medium term, the opportunity to link your return to any rise in the Index, and then times it by 10, could be a compelling one.”
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Defensive Investment Plan of the Year
Winner – over 3x any rise in the FTSE above 90% of its starting value, 62% cap
A ‘supertracker’ tracks the Index, in this case the FTSE 100 Index, between the start date and end date, and then multiplies any growth by a number known at the outset, in this case 3.1. An additional feature of the Morgan Stanley FTSE Defensive Supertracker Plan is that the growth is based on any rise above 90% of the FTSE’s starting value – so, for example, if the FTSE fell 5% you would still receive a 15.5% return (5% x 3.1), and if it rose by 5% you would receive a 46.5% return (15% x 3.1). The maximum return is capped at 62% of your initial investment.
However, if the FTSE ends below 90% of its starting value, no growth will be paid and your original investment will be returned in full unless the FTSE has fallen by more than 50%. 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.
Fair Investment view: ““This plan could appeal to investors whether you think the FTSE may fall slightly, stay the same, or rise in the coming years but not significantly. With defensive plans proving popular in the current market, by receiving over three times any rise in the Index the plan also offers investors the opportunity to beat the stock market.”
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Kick-Out Investment Plan of the Year
Winner – potential 10.5% annual growth
The Enhanced Kick Out Plan from Investec will return 10.5% per year (not compounded) provide the value of the Index at the end of each year (from year 2 onwards) 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. 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.
Fair Investment view: “Knowing how to invest when the FTSE is high continues to be a challenge for investors, but with the potential for high returns as early as year 2, even if the FTSE only rises by a small amount, perhaps helps to explain why this is one of our best selling plans with both growth investors and those looking for New ISA and ISA transfers ideas. The 10.5% headline is the highest for a kick out plan based on the FTSE only.”
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Runner Up – potential 9.1% annual growth
Our final plan is the UK Kick-out Plan (UK Four) from Societe Generale which is also based on the performance of the FTSE 100 and will pay 9.1% annual growth (not compounded) for each year provided the FTSE at the end of each year is higher than its value at the start of the plan, from the end of year 2 onwards. the Index closes below this level each year, no growth return will be paid and your initial capital will be returned in full unless the FTSE falls by more than 50% during the investment term and also finishes below its starting value. In this situation your initial investment would be reduced by 1% for each 1% fall and so you could lose some or all of your investment.
Fair Investment view: “The headline return on offer is lower than Investec’s however the plan does diversify the risk of Societe Generale defaulting by spreading the investment risk equally across Aviva, Barclays, Lloyds and RBS, collectively known as the ‘UK Four’. So not only is there the potential for high returns as well as some capital protection against a falling stock market, it also aims to diversify your investment risk.”
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No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular plan. If you are at all unsure of the suitability of a particular product, both in respect of its objectives and its risk profile, you should seek independent financial advice.
Always check whether any charges apply on transfer and remember that the preferential tax treatment of ISAs depends on your individual circumstances and is based on current law which may be subject to change in the future.
The alternative savings option referred to in this article is structured deposit plan that is capital protected. There is a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial capital and any stated returns. In this event you may be entitled to compensation from the Financial Services Compensation Scheme (FSCS), depending on your individual circumstances. In addition, you may not get back the full amount of your initial investment if the plan is not held for the full term. The past performance of the FTSE 100 Index is not a guide to its future performance.
The investments referred to are structured investment plans are not capital protected and there may be the 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 which case you may not be entitled to compensation from the Financial Services Compensation Scheme (FSCS). In addition, you may not get back the full amount invested 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.
AER – Stands for the Annual Equivalent Rate and illustrates what the interest rate would be if interest was paid and compounded once each year.
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