Savings Focus – Investec Kick Out Deposit Plan
13 November 2012 / by Oliver Roylance-Smith
With the current market for traditional fixed rates offering one of the poorest range of options and some of the lowest rates ever seen, it is easy to understand why the opportunity to generate higher returns is a compelling one. With this in mind, we take a detailed look at the Kick Out Deposit Plan from Investec to find out why this particular plan has been proving so popular.
Fixed rates underperforming
The current economic environment is one of the most challenging ever seen and those that are feeling it most are savers looking for a competitive net return once tax and inflation are taken into account.
Fixed rate bonds offer a solution with a choice of terms available, normally ranging from 1 to 5 years in length. However, with the Consumer Price Index at 2.7% and the Retail price Index at 3.2%, even the longer term rates which are currently only topping around the 3.5% mark are almost losing you money in real terms and shorter term fixed rates definitely are.
So savers continue to be faced with a tough decision, either lose money in a savings account or consider a wider range of options.
Potential return of 4.50% each year
This is where the potential to beat cash returns but with the safety net of capital protection could bridge the gap, and the Kick Out Deposit Plan from Investec provides one such alternative.
The plan protects your initial deposit whilst aiming to provide a return of 4.50% each year (not compounded). You will receive this return provided the value of the FTSE 100 at the end of any plan year is higher than its value at the start of the plan. The maximum term the plan can run for is five years but it has the potential to mature early or ‘kick out’ from year 2 onwards.
Since the plan is a structured deposit you will receive your initial deposit back in full after the five year term regardless of what happens to the FTSE 100 Index and as long as the deposit taker for the plan, Investec Bank, is able to repay your money.
In the event that Investec is unable to meet its liabilities, the plan would come under the remit of the Financial Services Compensation Scheme deposit protection. This means savers could be eligible for compensation from the scheme up to £85,000 per person if Investec was unable to return the capital to savers.
The potential for higher returns
When compared to the overall savings market and the options on offer, the 4.50% for each year the plan is in place is a high return, especially as this is potentially available after just 2 years. Our current best 2 year fixed rate is offering 2.85% so the potential upside should the plan kick out early is a compelling one.
Even if the plan runs for four or five years, the potential returns still offer a premium when compared with leading fixed rates of similar duration.
Balance with the downside
However, the potential upside must always be considered against the risk that the plan does not pay out. If the FTSE is never higher at the end of each year than its value at the start of the plan, the plan will not provide a return and you will only receive a return of your capital at the end of the 5 years.
In this situation you would have been better off with a fixed rate which would have provided a fixed return each year (albeit the effects of inflation would also need to be factored in). This is the risk you take in order to have the potential for higher returns.
Best of both worlds?
The potential for a high return coupled with full protection of your capital is something which seems to fit within the current economic climate and the ongoing needs of savers. Head of savings and investments at Fair Investment Company Oliver Roylance-Smith said:
“The latest version of the Kick Out Deposit plan from Investec is one of the few deposits on the market that can mature early and with a headline of 4.50% per year [not compounded] available as early as year 2, offers the potential for a healthy premium when compared with fixed rates currently on offer.
“This potential return also sits alongside the capital protection offered by a structured deposit, allowing savers the opportunity for high returns but without risking their capital.”
The plan is open for direct investments, Cash ISAs and Cash ISA transfers.
For more information about the Investec Kick Out Deposit Plan and to apply, click here »
No news, feature article or comment should be seen as a personal recommendation to invest. If you are in any doubt as to the suitability of a particular investment you should seek independent financial advice.
This is a 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 investment and any returns stated. 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.
© Fair Investment Company Limited