Fed up of disappointing savings rates?
Want a safe place to invest?
Improve your chances of making money without the risk
By Richard Stokes, Independent Financial Adviser
Savings rates are generally poor and have been for the last few years. So why do the British public obsess about keeping their money in the building society? Well it’s not just a case of better the devil you know – many people that have ventured outside the safe building society walls have been painfully burnt in recent times.
So how can you improve on the low interest rates without entering into a world littered by traps and investment risks?
This article is written for cautious but curious savers who want to tip-toe into the world of investing to potentially receive higher returns but with a low risk attached.
TRADITIONAL DEPOSIT ACCOUNTS – AND THE NEW WAY AHEAD
If you are reading this article in probably means you are online savvy enough to visit the price comparison sites and check out the fixed interest rate deposit accounts that improve as you lock your money in for a longer duration – so I will not waste your valuable time by teaching you to suck eggs. What I’m writing about is a stage on from that where the investment returns could potentially be high without risking your capital.
Cautious investors by nature want to limit their potential for loss. The best way to achieve this is to have a diversified portfolio that covers an array of investments as such the subject I cover herein should only be considered as a part of your overall strategic plan.
The risk for the investment I’m about to describe is primarily the interest rate. If you want certainty of an ‘interest rate return’ look elsewhere because although this is likely to be good it is NOT guaranteed.
The maximum ‘interest rate return’ you can obtain will depend on the plan length but could be as much as 27% and the lowest outcome is 0% (nil).
In keeping with the nature of a cautious investor the capital is safe – as it is a deposit account and is returned on the maturity of the plan – and nearly all of it should be returned mid-plan if you decide not to continue. So if you are looking for potentially a high investment return with low risk read on…
So how is the potential interest rate determined?
Well it depends on when the plan is taken out. The interest rate will be specified before the application, for example, we have one currently that is paying a rate of 4.5% per annum (not compounded). That is a high return bearing in mind the low risk.
The investment company is a well known South African Bank: Investec, who are the main sponsors of the Ashes this year.
What determines whether the 4.5% is paid?
It is dependent on FTSE 100 index* which is readily available to reference and is normally given out on the News at night. This benchmark obligates Investec to pay out at various intervals of the plan.
How does it work?
Well the good news is you are not expected to be an investment expert as the Provider manages the product.
On the day the plan starts (strike date) the FTSE 100 index is referenced at close and recorded (strike price). This figure is then referenced at the plan intervals and if it has risen above the strike price the plan stops and pays out the return.
The Plan has intervals at 2, 3, 4, 5 and 6 years and it will continue to run until the FTSE start point (strike price) is exceeded. If the FTSE does not exceed the strike price at the 6 year maturity date the plan ceases and no interest is earned but the capital is returned.
Example 1:
| Inception (strike price) | Year 1 | Year 2 (first interval) |
| FTSE 100 value is 6000 | FTSE value is immaterial | FTSE value is 6001 i.e. above the strike price) |
| Outcome | Plan continues | Plan ceases |
| Total pay out | 9% (2x 4.5%) |
Example 2:
| Inception (strike price) | Year 1 | Year 2 (first interval) | Year 3 | Year 4 |
| FTSE 100 value is 6000 | FTSE value is immaterial | FTSE value 5500 i.e. below the strike price) | FTSE value 6000 i.e. same as the strike price) | FTSE value 6001 i.e. above the strike price) |
| Outcome | Plan continues | Plan continues | Plan continues | Plan ceases |
| Total pay out | 18% (4x 4.5%) |
Summary of key plan features
Potentially good investment for low associated risk.
| Capital returned on maturity | Interest rate 4.5% pa (T&C’s apply) | ISA compatible | Protected by FSCS compensation scheme | Potential return of capital if redeemed early |
Expert comment
Aimed at clients with a low attitude to risk who are unwilling to risk their initial deposit, but are prepared to forego a fixed rate of interest for the potential of a higher annual return.
So far all of the plans that have been issued have had positive maturities and although this is does not guarantee the same for future subscriptions it is very reassuring.
Next Steps
All applications need to be agreed on an individual basis prior to application. This plan is available until the 10th August 2013. The start date (strike date) is 2nd September 2013 so if you are interested just drop us an email.
OTHER RELEVANT DATA
Summary of past Performance of Investec FTSE 100 Kick-Out Deposit Plans
| No. of versions thathave matured to date | No. of versions thatpaid positive return to client | Average return to client (%) | Average simple annual return to client (% p.a) |
| 32 | 32 | 10.47% | 6.53% |
About Investec
The Investec group is an international specialist bank and asset manager that provides a diverse range of financial products and services to a select client base in three principal markets, the United Kingdom, South Africa and Australia. The group was established in 1974 and currently has approximately 7,300 employees. Investec focuses on delivering distinctive profitable solutions for its clients in three core areas, namely Specialist Banking, Wealth & Investment and Asset Management. Investec sponsors English Test Cricket, the Investec Derby Festival, the England & GB Women’s Hockey team, the South African Women’s Hockey team, Tottenham Hotspur in cup competitions, the Investec Rugby Championship and Investec Super Rugby in New Zealand.
FTSE 100
The FTSE 100 or the Footsie, as you will sometimes see it written and pronounced – is an index that measures the performance of the shares of the 100 largest companies listed on the London Stock Exchange. It measures the overall share price performance of those 100 firms.
Snap Shot of historic FTSE 100 prices (close of the day)
| Date | FTSE Price at close |
| 1st July 2013 | 6539.80 |
| 1st June 2013 | 6214.80 |
| 1st March 2013 | 6410.80 |
| 1st Jan 2013 | 6276.50 |
| 1st July 2012 | 5631.80 |
| 1st July 2011 | 5815.19 |
Source investing.com
All cases need to be discussed and agreed on individual basis prior to application.
For more information on your Investment options please contact us on T: 020 7993 2044 or alternatively complete the simple enquiry form on the top right hand side of this page.=
Richard Stokes is a partner at Niche Advice Ltd who are Independent Financial and Mortgage Advisers in London.
Important Risk Information:
Past performance is not an indicator of future performance. This is a deposit account so is capital protected and covered by the Financial Services Compensation Scheme (FSCS) for default alone. Income and growth returns are not guaranteed. There is also a risk that the company backing the plan known as the Counterparty may be unable to repay your initial investment and any returns stated.
The value of investments and income from them can fall as well as rise and you may not get back the full amount invested. The tax efficiency of ISAs is based on current tax law and there is no guarantee that tax rules will stay the same in the future.
Different types of investment carry different levels of risk and may not be suitable for all investors. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment and should read the product literature. If you are in any doubt as to the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.
Author: Richard Stokes
Richard Stokes is a partner at Niche Advice who are whole of the market Independent Finance Brokers In London. His role is very much focused on on Mortgage and Insurance products.
