Don't put up with low savings rates

With bank and building society savings account interest rates providing minimal returns, cash savings for investors remain unattractive.

Currently, investors are typically receiving interest rates of between 0.5% and 1.6% per annum on their savings. Whether on a variable rate or fixed rate, this will result in a loss, in real terms, as the low interest rates are below the current rate of inflation, which is in the region of 2.5% per annum.

There are also accounts and investments  where a very attractive introductory bonus rate is applied for an initial period of 6 or 12 months. Once this initial period has elapsed the rate can drop substantially.

Fortunately there are other alternatives available. Deposit based structured products are being used as an attractive, lower risk investment option. These plans are available as an ordinary investment, i.e. with the returns being subject to income tax liability, or as an Individual Savings Account (ISA), where it is also possible to effect an ISA transfer. They offer an individual, or couple, the opportunity of an investment protected by the Government’s Financial Services Compensation Scheme (FSCS), up to £85,000 per individual or £170,000 jointly.

The returns on deposit plans are potentially more attractive and could produce, for example, 4.5-6% per annum.

Deposit plans are designed to pay out the full maturity value, subject to the Index it tracks being higher at maturity, i.e. some structured deposits track the FTSE 100 Index and only require the Index to be 1 point higher at maturity. More recently, some structured deposit plans have also included a ‘defensive option’, whereby the full maturity value will be paid out even if the Index level is lower at the point of maturity than the Initial Index level at the start of the plan, for example by as much as 15%.

If the plan runs to full maturity and does not exceed the Index level required, the original investment will be returned with no return, which would result in the inflation adjusted value being less.

In addition, many structured deposit plans have a ‘kick-out’ facility providing up to 4 opportunities at which the plan can pay out/mature early subject to the Index being at a certain level.

Typically, the term for a structured deposit plan is between 3-6 years, with the plans having the chance to ‘kick-out’ early from year 3 onwards. There is no control if a plan ‘kicks-out’ or when. This can also be an advantage and provides flexibility to consider re-investment options or whether the funds are required at that time.

If you wish to discuss deposit based structured investments or require any other financial advice please contact me on 01206 217375 or joe.mcardle@birkettlong.co.uk.