August’s Plans of the Month
Here we bring you the second of our new series of monthly round ups on what we consider to be our plans of the month across both savings and investments. The plans featured are spread across five different categories, two capital protected savings plans and three investment plans, thereby covering both savers and investors as well as new and existing visitors to Fair Investment
As a reminder, the five ‘Plan of the Month’ categories are as follows:
- Income investment
- Growth investment
- Kick Out investment
- Savings alternative
- Fixed rate bond
From a fixed rate of return and capital protection, to putting your capital at risk for the potential of double digit growth returns, these five categories have been selected to cover a range of options for both savers and investors, seeking either income or growth.
The criteria used include the rate or headline return on offer, the number of potential customers who have requested information, the number who have actually taken out each plan as well as plans that have shown innovation within the market or have unique features which make them comeplling. Since the best plans are often only open for a relatively short period or can have their interest rate changed quickly, the plans included must also either be available at the time, or we are shortly due to launch a new version.
We also give you our own view of each plan, brought to you by our Head of Savings and Investments, Oliver Roylance-Smith. Here we give you an independent view as well as try to help you understand what might be making the plan so popular, whether this is the return on offer or a particular feature.
Augusts’ Plans of the Month
With the New ISA rules in full swing, savings rates starting to show signs of moving up and an interest rate rise looking unlikely this year, this has been a busy month with high levels of activity across all five categories.
The Enhanced Income Plan from Investec has been a consistent performer for some years and is rarely shifted from being one of most popular income investments. The current issue paying a fixed annual income of 5.64%, with payments of 0.47% each month paid to you regardless of what happens to the FTSE 100 Index. Capital is at risk if the Index falls by more than 50% during the investment term. If it does, and the FTSE 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: “Knowing exactly how much you will be paid, when and for how long are clearly features which have struck a chord with both savers and investors and the monthly payment frequency is a popular feature. With future dividend yields from UK equities under pressure and any rise in interest rates expected to be slow and limited, now might just be the time to consider a high fixed income and without the need to pay tax if held within an ISA, this plan also offers an attractive opportunity to use your New ISA allowance to receive a fixed and regular tax free income.”
The FTSE Defensive Supertracker from Morgan Stanley retains its status as Growth Investment Plan of the Month, mainly due to its defensive view on the FTSE proving to be popular with investors. The plan tracks the FTSE 100 Index between the start date and end date, and then multiplies any growth by 3.1. The defensive feature of this 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.
If the FTSE has fallen by 10% or more at the end of the term, no return will be paid. You initial investment is returned in full unless the Index has fallen by 50% or more at the end of the 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.
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.”
The increase to a potential 10.5% from the current issue of the Enhanced Kick Out Plan from Investec has helped it retain its position here for a second month. The plan will return a market leading 10.5% per year (not compounded) provided the value of the FTSE 100 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 the potential for high returns as early as year 2, even if the FTSE only rises by a single point, 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 based on the FTSE.”
The Kick Out Deposit Plan from Investec is a new entrant in this category and is aimed at savers who are prepared to tie in for the longer term but who would also like the opportunity for their plan to mature early. The return on offer is a potential 5.5% per year (not compounded) and the plan 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 (subject to averaging) – even by just one point. That’s a potential 16.5% after 3 years. If the Index is lower on all of these dates you will only receive a return of your initial deposit.
Fair Investment view: “Our leading 3 year fixed rate bond is paying 2.70%, with lower rates available for fixing within a Cash ISA. So if you’re looking for new ways to use your savings and are prepared to sacrifice a guaranteed return, this plan could provide over double the current fixed rates on offer.”
With all the talk around a potential interest rate rise, for those prepared to tie up their money for a fixed period a two year timeframe is a popular choice. The fixed rate of 2.35% AER available from Investec’s 2 Year Fixed Term Deposit is market leading, which of course helps to explain it featuring in Augusts’ selections. Interest can be paid annually or monthly, it can be set up as a single or joint account and access to account information is online or via telephone. You can apply online and as with most fixed term accounts, no early withdrawals are permitted.
Fair Investment view: “The minimum deposit of £25,000 is relatively high but increased minimums have become more common in order to secure the highest rates and the 2.35% AER available is currently market leading. With inflation slowing to 1.6% for the year to July, the rate has been popular with savers looking for a fixed return but who also have half an eye on what might happen to interest rates in the next few years.”
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 and 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 and any of its shares 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.