September Plans of the Month
With the summer well and truly behind us, we take a look back at what has been a very busy month with our round up of our September Plans of the Month. With five categories including traditional fixed rates bonds, FSCS protected savings alternatives, as well as income and growth investments, this monthly review is designed to give you a quick snapshot of what is proving popular with both new and existing Fair Investment customers.
Busy, busy, busy
It seems that the impact of the increased New ISA allowance continues to build momentum, offering a strong mid-tax year reason for reviewing any existing ISAs, as well as the wide range of options for ISA transfers and new ISA investment opportunities. But it’s not just with those looking to benefit from tax-efficient returns where we have seen increased activity, as non-ISA savers also continue to be frustrated with low savings rates and increasingly begin to look wider afield.
Plans of the month categories
And it is here that our range of structured plans has been popular with our customers, 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.
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 four of our five Plans of the Month categories are structured plans. As a reminder, the categories are:
- Fixed rate bond
- Savings alternative
- Income investment
- Growth investment
- Kick Out investment
We also give you an in-house view of each plan, brought to you by our Head of Savings and Investments, Oliver Roylance-Smith, who gives his own thoughts as to what might be making each plan so popular.
Fixed Rate Bond Plan of the Month – 3 Year Base Rate Plus, 2.60% AER minimum
There has been little to shout about in the traditional fixed rate savings market in recent years, which is why Investec Private Bank is to be applauded for showing innovation with its 3 Year Base Rate Plus plan. The account pays 1% AER/variable above the Bank of England Base Rate but with a minimum rate of 2.60% AER, so whatever happens you know you will never earn less than this. Interest is not compounded and will be paid into your nominated account annually. No early closure or withdrawals are permitted.
Fair Investment view: “Not only is the minimum 2.60% on offer market leading in the current three year fixed rate bond market, the account also offers savers some further potential upside should interest rates go up. So for anyone considering tying their money up for this term, these are two very strong reasons not to look anywhere else.”
Savings Alternative Plan of the Month – Potential 4.40% p.a. income
The Target Income Deposit Plan from Investec offers 4.40% each year provided the value of the FTSE 100 Index at the end of each year is higher than 90% of its value at the start of the plan (subject to averaging). If the Index finishes below 90%, no income will be paid for that year. Should it meet the required level on any future anniversary, all missed payments will be added back.
Fair Investment view: “Unlike traditional fixed rate bonds your 4.40% interest payment is not guaranteed. For those considering tying up their money for the longer term though, the plan does offer the potential for a healthy upside when compared to leading fixed rates and with the additional memory feature, could be a compelling alternative to low savings rates.”
Income Investment Plan of the Month – 5.40% fixed income
The Enhanced Income Plan from Investec was our ISA season best seller and continues to be a top performer. The current issue pays a fixed annual income of 5.40% with payments made monthly (0.45% 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. The combination of these features perhaps help to explain why this plan has proved so popular and remember, if you hold the investment within an ISA, this high level of fixed income is tax free…”
Growth Investment Plan of the Month – 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.”
Kick-Out Investment Plan of the Month – 7.50% annual growth even if the FTSE falls up to 10%
Whilst the recent falls in the FTSE offer investors a reminder that anything can happen to the stock market, defensive plans continue to be popular as they offer the potential for investment level returns even if the stock market falls by up to a specified amount. The Defensive Kick-Out Plan from Investec also combines the opportunity to mature early or ‘kick out’ each year from the end of year 3 onwards – and will do provided the level of the FTSE is above 90% of its value at the start of the plan. If it is, then you will receive 7.50% for each year invested (not compounded).
If the Index has fallen by 10% or more at the end of each year, your investment continues and if no return is paid, your 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: “For those who are not confident the FTSE will rise significantly in the coming years, the potential for 7.50% annual returns even if the FTSE 100 Index falls up to 10% could be an appealing one, especially while the Index still remains at historically high levels. So whether you think the FTSE might fall slightly, stay the same or rise in the coming years but not significantly, this defensive investment could be a timely opportunity.”
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 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.