Comparsion of three deposit funds - INVESTEC and SOC GEN

veryintrigued

Hi there

Being the risk averse sort of chap I am I'm looking at three of these types of funds. Limited returns but also guarantee of original sum.

They are with companies and products I havent dealt with so I'd appreciate any feedback on these funds (and their predecessors) please. i've used my cash ISA allowance so all interest will be taxed.

1 - INVESTEC - 3yr FTSE 100 - 13.5% return if FTSE rises above level invested at (4.5% gross 'simple' interest).

2. - INVESTEC - 5yr FTSE 100 Kick out plan 33 (not enhanced) - 4.5% annual return and kick out if FTSE rises above level after years 2,3,4 and 5.

3. - SOC GEN - 6 yr UK Range 7 deposit plan 2 - 7% annual return if FTSE100 within 12% of starting figure. Allowable FTSE range increase of 3% per year (i.e. 27% in year 6).

I'm currently minded to look at the first and last but would appreciate if anyone sees any huge drawbacks please.

Thanks as always in advance

Reaper

They sound like structural products. As such you have to realise risk is involved. There is no FSCS protection and if the company (or its guarantor) go bust you can lose your money. Investec for example has a pretty low credit rating rating.

There are a few previous threads on the subject you can search for. Here is one to get you started.
https://forums.moneysavingexpert.com/discussion/4121181

veryintrigued

Reaper wrote: »

They sound like structural products. As such you have to realise risk is involved. There is no FSCS protection and if the company (or its guarantor) go bust you can lose your money. Investec for example has a pretty low credit rating rating.

There are a few previous threads on the subject you can search for. Here is one to get you started.
https://forums.moneysavingexpert.com/discussion/4121181

Thanks for this. the link was very useful.

The credit rating of Investec is BBB- I think (with Fitch) and Baa3 with Moodys.

However the brochure I am looking at suggests that deposits are held in Investec Bank plc and so are covered by the £85k within the FSCS? Or have I missed something?

gadgetmind

Reaper wrote: »

Investec for example has a pretty low credit rating rating.

It's this low rating that puts me off using INVR as an interest rate hedge, but it's still tempting.

Reaper

I have now found the brochure online and it does indeed appear Investec have switched to a deposit model which I believe means you will indeed be fully covered by the FSCS, unlike their earlier issues.

That makes it a lot more appealing. A few things to note though:
1) Quoted returns are simple not compounded, so take that into account when comparing it to other savings alternatives.
2) It may be possible to put it in a SIPP or ISA and get the returns tax free
3) You will only get your capital back if the FTSE drops throughout the term. If that happens your money will have effectively shrunk by however much inflation has been over the period.
4) There is another version of the product which does not pay commission to an IFA so gives a better return - 5.75% instead of 4.5% for example. You could see if you can pay a discount broker to either supply you with this one or refund you the commission from the standard one.

Or you could make life simpler and just stick with a savings account. Punjab Bank are FSCS protected and offer a similar rate over 5 years, and that rate is guaranteed unlike these.
http://www.pnbint.com/fixed-deposits.asp

dunstonh

all three would fail our due diligence (unless they are deposit backed - havent checked. If SCARP then no chance). Others may disagree but I wouldn't touch them with a bargepole. I wouldn't even do them on execution only.

veryintrigued

Reaper wrote: »

I have now found the brochure online and it does indeed appear Investec have switched to a deposit model which I believe means you will indeed be fully covered by the FSCS, unlike their earlier issues.

That makes it a lot more appealing. A few things to note though:
1) Quoted returns are simple not compounded, so take that into account when comparing it to other savings alternatives.
2) It may be possible to put it in a SIPP or ISA and get the returns tax free
3) You will only get your capital back if the FTSE drops throughout the term. If that happens your money will have effectively shrunk by however much inflation has been over the period.
4) There is another version of the product which does not pay commission to an IFA so gives a better return - 5.75% instead of 4.5% for example. You could see if you can pay a discount broker to either supply you with this one or refund you the commission from the standard one.

Or you could make life simpler and just stick with a savings account. Punjab Bank are FSCS protected and offer a similar rate over 5 years, and that rate is guaranteed unlike these.
http://www.pnbint.com/fixed-deposits.asp

Thanks for taking the time for all of that 1-3 I was aware of. Number 4 is food for thought!

Thanks again

veryintrigued

dunstonh wrote: »

all three would fail our due diligence (unless they are deposit backed - havent checked. If SCARP then no chance). Others may disagree but I wouldn't touch them with a bargepole. I wouldn't even do them on execution only.

They are as i have read them.

Jonbvn

OP,

I recall as post on here which demonstrated that you could easily beat most structured products by using a combination of cash deposits, bonds and equities.

Jegersmart

Ï have seen a lot of structured products (the above are not funds) in my time and very rarely have they looked like they offered good value under close inspection and these dont on the surface look any different.

Depending on the amount we are talking about here and the likelihood that I would need the money or part of it etc etc - I would probably put some in the highest rate deposit account I can find, some in a bond-based investment and then the rest in equities funds. I like Japan, China, Financials and possibly commodities at the moment and into 2013, investing in OIECS or other fund-based investments means that you can also change things around if you prefer but still have the cash deposit element as a base with no volatility.

Is there any particular reason that you are attracted to FTSE linked products? Are you bullish UK?

The options are many and ultimately the choice is of course yours.:)

Good luck

J

grey_gym_sock

i don't get the point of this kind of product at all. in effect, you are putting most of your money in a fixed-rate fixed-term account (which is OK if it has FSCS protection), and the rest in a crazily risky derivative product which you'd never consider buying separately if you're at all risk-averse.

if you're risk-averse, but want the chance to profit from the stock market in a small way, just keep most of your money in savings accounts (or fixed-rate accounts) and put e.g. 10% or 20% in a more conventional stock market investment (a fund or an investment trust). in the worst case, your fund might perhaps halve in value, but a few years' interest on the rest of your money will make up for that.

the stock market is also especially risky over short terms like 3-6 years. so a product that definitely ends after such a short time is a bad idea.