Early Exit Fees-How much?

joanne1971

Hi

Early this year we invested £10,000 in a Credit Suisse inflation linked 6 year bond (for our 2 year old daugher) via the Yorkshire Building Society.

We have since thought better of this and realise the money would be better paid of our mortgage and we can save up for her later.

In the small print it says there are early exit fees - but I cant seem to find out howmuch they are. At YBS they said I would need to apply in writing to close it and then I would find out. This seems very odd as obviously I would not close if the fees are massive.

Can anyone give me a ballpark on how much fees are likely to be?

Thanks

opinions4u

It depends on how much it costs the provider to break the hedge theyve paid for.

I'd guess between 5% and 10% of the capital. But you'd need to ask ...

joanne1971

oh so Icould loose up to 1000 - probably not worth doing - wonder howmuch i'd save in mortgage interest?

I have asked about how much but they were not keen to say at ybs.

dunstonh

Typically, you suffer the loss on the underlying assets if the markets have fallen and a penalty around the £250-£500 mark.

It is a guess for any of us here but given where the markets are currently, £1000 seems a good ballpark figure.

xylophone

Do you mean that the account is in your daughter's name and held in bare trust for her? If so, this money is now hers and not yours.
See http://www.hmrc.gov.uk/tdsi/children.htm regarding tax treatment of parental gifts to children.
http://www.direct.gov.uk/en/moneytaxandbenefits/managingmoney/planningyourpersonalfinances/dg_10013916

VT82

It couldn't hurt to ring them up and ask for the quote. If markets have moved in your favour since it started, you might only be down the admin fee and the opportunity cost of lost interest.

The valuation will depend on what has happened to the expectation of 'future payments' of the underlying structure since the product was originally launched. The future payments include receiving inflation linked payments so they can pay these to the customer, and also making LIBOR linked payments to the Credit Suisse Treasury to hedge their exposure.

In the last few months, inflation expectations have probably increased (a few months ago it was all but certain that inflation was going to finally come into target quite soon, but it's unexepectedly increased this month). This would work in your favour as the person whose return would benefit from a higher RPI.

Expectations for LIBOR (what Credit Suisse's structured product/marketing department will be paying to their Treasury to be able to offer inflation linked savings to customers) have been more volatile - sometimes rate increases have looked likely to have been brought forward, but then these expectations have been pushed back. If when you ask for the quote, it looks likes rates will be higher over the term than it looked when you started the product, then this is a higher cost to them which means your value is lower. So this would depend on when the product was priced by them, and when you ask for the valuation.

The fly in the ointment would be if they have paid commission to someone for the sale - if your valuation is already offside by this much when the product started, and they can't claw it back off the salesperson if someone closes the account, you are very unlikely to be able to close it without suffering a hit. You're therefore probably looking at 3% of the capital right there.

If there is no charge for getting the formal quote, there's no harm in finding out. You may be pleasantly surprised.