Abbey Guaranteed Growth PAln 10 (5.5 Year) - A bad investment?

[Deleted User] · 19 June 2008 at 1:45PM

I lost both my parents last year in separate and tragic circumstances and amidst all of the chaos and upset I had to deal with their affairs. My dad died first and I had to deal with his estate and look after my mums interests (she was in a nursing home). Later mum died and I'm still in the process of winding up her affairs.

My bank had always been the Abbey, and mum and dad had accounts there too so I relied on their financial adviser to help me sort every thing out. Things were so chaotic that I didn't have time to worry about whether we were getting the best possible return. I assumed that the best Abbey had to offer would be at least reasonably competitive.

To cut a long story short, we didn't want to take risks and were advised to put half of mum's money into the Guaranteed Growth Plan 10 (tied up for 5.5 years), and half into a Superbond that got 8.1% interest for the first year. These were both taken out in August/September of 2007. Mum has since passed away and the Superbond is being cashed in and the Guaranteed Growth Plan will be transferred into my brother and my names (we are beneficiaries).

Dad also left me £50,000 and I was also advised to put 100% of that into the Guaranteed Growth Plan 10 (again tied up for 5.5 years).

So I'm stuck with £110,000 tied up for 5 years in this Guaranteed Growth Plan 10, and I've saddled my brother with £60,000 in the same product. From what I can gather elsewhere I'd have been better off putting the money into a high interest Instant Access account (which is what I'd have preferred at the time but was talked out of it)!

How big a mistake have I made? From reading this site it seems I could get as much as 6.5% in an instant access account. How does this compare with what I'm likely to get in this Guaranteed Growth Plan 10? It's currently worth less than I paid in - should I consider closing it down at some point in the future and moving it elsewhere?

[Deleted User] · 19 June 2008 at 2:26PM

I forgot to mention....

I'm guaranteed 25% return on my investment after 5.5 years.

Is this good? Bad? Average?

I told the advisor at the time that I'm not a gambler and have no interest in the 'what good things might happen'. I wanted to be sure that what was guaranteed was competetive.

dunstonh · 19 June 2008 at 2:28PM

My bank had always been the Abbey, and mum and dad had accounts there too so I relied on their financial adviser to help me sort every thing out

Abbey employ sales reps who currently call themselves financial advisers but under FSA proposals (finalised in Oct this year) they will no longer be able to. This shoudl finally clear the muddy waters around sales and advice (both different things but muddied into one another over the years). Unfortunately, that change hasnt come quick enough for you.

I assumed that the best Abbey had to offer would be at least reasonably competitive.

Bank investment products are generally rubbish. Expensive, poor terms and typically lower than average returns.

From what I can gather elsewhere I'd have been better off putting the money into a high interest Instant Access account!

That may or may not be the case but you wont know until maturity what option was best. You certainly could have got far better options from the whole of market but comparing investments against savings isnt as easy.

How big a mistake have I made? From reading this site it seems I could get as much as 6.5% in an instant access account. How does this compare with what I'm likely to get in this Guaranteed Growth Plan 10?

We cant tell. It's all dependent on future returns and no-one can tell what they will be over 5.5 years.

should I consider closing it down at some point in the future and moving it elsewhere?

Depends on penalties and what you do with the money as alternative options and how good they are.

I told the advisor at the time that I'm not a gambler and have no interest in the 'what good things might happen'. I wanted to be sure that what was guaranteed was competetive.

You have a guarantee and Abbey have sold you the best product from their range. However, it just isnt a good product but they did the best within their remit. So, certainly nothing wrong with what they did.

[Deleted User] · 19 June 2008 at 3:06PM

Thanks for that!

It seems things aren't nearly as bad as I was beginning to think!

I really did want to stick with savings rather than investments as it would upset me too much if things went badly. I'd much rather settle for a lesser, but guaranteed return. I just want to make sure that that guaranteed return is reasonably competitive.

I was beginning to get the impression that the guaranteed return with this was very poor compared to straightforward savings accounts. But from what you say this isn't necessarily the case. Although in retrospect I think I'd rather not have committed the money for so long as my aversion to gambling makes me feel uncomfortable about sitting tight and waiting to see what happens to interest rates.

I have perhaps £80,000 or so more to invest. My inclination is to not commit to anything more than a year and just keep moving the money to whoever is offering the best interest at the time. (I liked the sound of the advise on this site to start with ISA's, then Regular Savers then High interest Instant Access accounts. Is this a reasonable course of action for someone that hates to gamble? Or are there any significant benefits to tying money up for longer periods in bonds or long term savings accounts?

DRS1 · 19 June 2008 at 3:07PM

Couple of things which may make you feel a bit better:-

1

DRS1 · 19 June 2008 at 3:12PM

Trying again

1 Would your mum have been allowed to have the super bond without putting money in the GGP as well? I imagine not.

2 Is the gain on the GGP subject to income tax or capital gains tax? I think it is subject to CGT which means you can get about £9K of gain tax free at the moment (and that will probably have gone up by the time the GGP matures). Even if some of it is taxed, the rate of CGT is 18% which is better than the current IT rate for a basic or higher rate tax payer.

[Deleted User] · 19 June 2008 at 3:30PM

Mum had to take out the 5.5 year bond to get the 1 year Super Bond at 8%. We put £120,000 into each.

Unfortunately all of my £50,000 was invested in the guaranteed growth bond - half in my name and half in my partners. I was told this would be better for us as we didn't need the money any time soon.

We took them out in Sept 07, and are in the process of closing down the SuperBond now. I don't think we're penalised for closing down the SuperBond before the year is up. So that should be a very good return on half of the £220,000 we invested for her - right?

And yes, I think you're also right about the tax benefits. Now that mum has passed away, the 5.5 year bond is being split into two (half for me, half for my brother). IIRC the advisor explained that capital gains tax on interest isn't due until the bond matures, and that once split into two £60,000 bonds neither will earn enough interest to be liable for capital gains tax. However, I don't really understand this aspect of things. Would there have been more tax to pay if I'd simply put the money into a high interest deposit account?

I really didn't have time to think about this when we were setting things up, and now I'm trying to get my head around everything and make sure I've not done anything silly!

DRS1 · 19 June 2008 at 5:52PM

I confess I don't know if there are penalties for closing the super bond early but if it is caused by your mothers death then that would seem harsh to me. Better check with Abbey before you close it just in case.

That aside 8% is good - you can't get that rate on any stand alone fixed rate bond AFAIAA even now.

I don't know what impact your mothers death has on the tax treatment of the GGP - again worth checking with Abbey?

Ignoring that the way I thought about it was to compare the actual return on the GGP with the net return I would have got on a normal fixed rate bond (assuming you keep the gain below the annual CGT allowance).

Let's assume you get the minimum return (25% in your case) that gives a gain of £12,500 on the £50K. You have split that to give you and your partner a gain of £6,250 each. That is below the current CGT annual allowance and assuming you have no other gains in the tax year when the GGP matures it means you pay no tax on the gain. If you are basic rate tax payers and got interest subject to income tax you would have had to get over £7,800 gross interest on a fixed rate bond to match that; if higher rate taxpayers you'd need over £10,400. I am no good at compound interest otherwise i'd try to work out what that means the percentage rate would need to be on a normal fixed rate bond. On a simple basis I think it is about 5.6% for a basic rate taxpayer and 7.5% for a higher rate tax payer but that overstates it somewhat. There are clever people on here who can do compound interest and perhaps one of them can clear this up.

And who knows you may get more than the bare minimum return if the stock market does well.

[Deleted User] · 19 June 2008 at 8:05PM

I'm feeling MUCH better now!

The Abbey financial advisor is handling all the closing of my mum's accounts. He's told me that it'll be fine to simply split the GGP between my brother and I and that we then essentialy double the amount of tax free interest on the original investment by doing this. So my brother and I will each have £60,000 of the GGP plan and we'll only pay tax on interest earned over our allowed threashold.

At the time we set up the superbond I asked if there would be a penalty if anything happened to mum and was told no.

So that's all looking good. :j

Another thing that I think might be in our favour is that the £25,000 GGP bonds that my partner and I have are made up of £18,000 Direct Share Investment and £7,000 ISA investment. This is good...no?

Thanks for all the info DRS1. I feel a bit silly having all this money and not having a clue how I've got it invested!!!! It was explained to me when I set the accounts up but I didn't really take it in at the time.

So I guess the Abbey GGP is getting critisism for being a poor form of investment compared with other forms of investing in shares. But for cowards like me that want guarantee's it seems it's not so bad?

dunstonh · 19 June 2008 at 8:40PM

So I guess the Abbey GGP is getting critisism for being a poor form of investment compared with other forms of investing in shares.

Its poor compared to other guaranteed options.

But for cowards like me that want guarantee's it seems it's not so bad?

Its the cost of the guarantee that is the problem. Once you realise what you are losing and alternatives out there from the independent market then you see how poor it is.

The Abbey financial advisor

Stop thinking as the insurance agent as a financial adviser. They are a sales rep for Abbey. They may be very nice but at the end of the day they dont have the full remit a real adviser has (hence why the FSA wont allow them to be called advisers from next year.

[Deleted User] · 19 June 2008 at 8:58PM

The man at the Abbey who's been advising me currently has the job title of 'Financial Advisor' so that's how I refer to him. If and when his job title changes to something else I'll use that title. I'm not making any assumptions about anyone's qualifications - just using the man's current job title so people know who I'm talking about.

Its poor compared to other guaranteed options.

So can anyone give an example of a more competetive guaranteed option?

Take my mum's investment...

She was guaranteed:

- 25% after 5.5 years on £120,000.
- 8.1% on £120,000 for a single year.

What (roughly) could I have got with a GOOD guaranteed option? If Abbey products are so bad who's are good? And how much better are the good ones. Rembember - I don't want to gamble with shares.

This is what I'm trying to understand. In simple terms how much money have I lost by investing in this way?

And if things are really so bad should I consider cutting my losses and investing elsewhere (Bearing in mind that currently it's worth less than I paid in)?

Abbey Guaranteed Growth PAln 10 (5.5 Year) - A bad investment?

Comments

Confirm your email address to Create Threads and Reply

🚀 Getting Started

Categories

Is this how you want to be seen?

Get our FREE Weekly email full of deals & guides - and it’s spam-free