Lower risk investment opportunitieis

With the Bank of England base interest rate being held at a record low level of 0.5% for over four years, bank and building society savings account interest rates remain unattractive.

Investors with bank and building society Cash Individual Savings Accounts (ISAs), despite the tax free status, have been particularly affected.  Many people who have held variable rate ISAs for a number of years, in which they may well have accumulated a considerable amount, typically can be receiving an interest rate of between just 0.1% and 0.5%.  Such cases have often arisen where a very attractive introductory bonus rate was applied initially for a period of six or twelve months but the rate then dropped substantially at the end of that period.

It is possible to effect ISA transfers, usually, but not always, without any charge being levied. However, alternative bank and building society cash ISA rates, whether variable or fixed, will generally still result in value being lost in real terms as these rates are invariably below the current rate of inflation, which is in the region of 2.8% per annum.

Fortunately there are other alternatives available.  Deposit based structured products have become popular as an attractive, lower risk investment option instead of traditional bank and building society ordinary and ISA accounts.

Deposit plans 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 joint.  These plans can be held either as an ordinary investment, i.e. with the returns being subject to income tax liability, or as an Individual Savings Account and, indeed, it is possible to effect ISA transfers to these plans.

The returns on deposit plans are potentially more attractive and could produce, for example, 4.5-5% per annum.

Recent popular deposit plans have been designed to pay out the full maturity value subject to the FTSE 100 (Stock Market) index being only 1 point higher at maturity compared to the Initial Index starting level of the plan.  However, should the FTSE 100 index be lower at maturity, only the original investment would be repaid, albeit in full.

A number of deposit plans now have a kick-out facility, which provides four, or more, points (i.e. chances) at which the plan can mature/pay out subject to the index level being higher.

Should you wish to discuss this alternative form of investment, or require any other financial advice, please contact either Nicola Ward, Financial Planning Manager, or Paul Chilver, Financial Planner, on 01245 453800 - email nicola.ward@birkettlong.co.uk or paul.chilver@birkettlong.co.uk