Comparsion of three deposit funds - INVESTEC and SOC GEN

jimjames

grey_gym_sock wrote: »

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.

This comment sums up my thoughts on these type of products too.

Unless you can 100% guarantee that you will never need that money before the term is up then avoid them as you are likely to have to pay penalties to get at your money.

Also remember that these products do not include dividends in their calculations. The FTSE yield is currently just under 4% I believe so that is part of the return you will never see, just the change in the capital value of the index.

dunstonh

The SCARPS you can understand at times. They can be useful if the terms are good and the counterparty risk is low. The deposit backed ones though tend to have dire terms with all the cards stacked in favour of the issuer. You rarely see decent terms.

gadgetmind

I've always seen these things as an expensive way of buying a low interest deposit account and a call option.

veryintrigued

Reaper wrote: »

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

Branch only isnt it though by the looks of things?

EDIT - SPOTTED ITS POSTAL TOO

Reaper

If you go for the Punjab account you had better hurry, the average interest rate is being reduced from 4.5% to 3.9% from 1st December.

veryintrigued

Update here (not a savings diary…honest!!).

I eventually went for the Soc Gen plan (and a Punjab fixed rate account too).

The Soc Gen plan has given me a lot of entertainment over the past year watching the closing values of the FTSE 100. Its only just scraped in to the 12% upper margin required to pay a 'coupon' in year 1!!

This margin is increased to 15% next year. i.e. an extra 3%. Meaning that that the range of movement in closing values of FTSE 100 needs to be between 5253.83 - 7108.1 for me to get an annual (7%) 'coupon'.

I cant say I'm as confident as a year ago. Still, I made 7.175% (gross) made this year from it (Moneyworld added an extra 2.5% to the deposit for execution only).

An interesting and enteraining year ahead watching closing values!

PS - this isnt a 'look at me - I've made 7 odd % this year type post' - more of a 'I doubt I'll make 7% next year type of post!!'

kidmugsy

I'd view anything that invited me to keep an eye on the FTSE closing prices as a bad move. It takes all kinds ….

veryintrigued

So today I received a letter out of the blue from Soc Gen today (via a broker) saying that for a limited time (early Sep) they will allow this plan to be cashed in with no termination fee.

They are offering interest at 2.3% gross compounded from start date of the plan 21/1/13.

The letter states this equates to 103.78p for every £1 I invested. The letter then goes onto to say that because the first annual coupon paid out 7% that I will receive an additional 96.78p for every £1 invested.

If I take out the offer the plan will be terminated.

So two(ish) questions:

Is this normal? Why are they offering me this - is it that they see the plan paying out more and are trying to cut losses?

Why do they use the word 'additional' above. Thats got to be wrong - i.e. they wont be paying me over £2 for every £1 I have invested?!!! Indeed when I do the maths they are indeed paying 2.3% but including the first years 7% in the 2.3% - cheeky b@ggers!!

Thanks as always in advance

Thrugelmir

veryintrigued wrote: »

Is this normal? Why are they offering me this - is it that they see the plan paying out more and are trying to cut losses?

Avoid a mis-selling fine perhaps.

Also likely to be retrenching their operations. European banks are shrinking.

bowlhead99

veryintrigued wrote: »

They are offering interest at 2.3% gross compounded from start date of the plan 21/1/13.

The letter states this equates to 103.78p for every £1 I invested. The letter then goes onto to say that because the first annual coupon paid out 7% that I will receive an additional 96.78p for every £1 invested.

So, they are giving you an option to exit the product that you would otherwise be locked into for however many years. To take the money and run, turning this into a simple deposit paying compound interest at some reasonable market rate, rather than a complex product which pays non compounding interest and whose return (or lack thereof) is subject to the vagaries of the market.

Why do they use the word 'additional' above. Thats got to be wrong - i.e. they wont be paying me over £2 for every £1 I have invested?!!! Indeed when I do the maths they are indeed paying 2.3% but including the first years 7% in the 2.3% - cheeky b@ggers!!

You already told us they paid out the 7% so far. So, if the aim is for you to get a return equating to the 2.3% p.a. compounded on the money they were holding for you, which would be a grand total of 104, they would need to give you an additional 97 on top of the existing 7 which is already in your hands, to get to the 104.

At which point they would have given you 104 total, which is the amount they should have given you at 2.3% compounded, so they would not owe you anything more and you would not owe them anything more and both parties could walk away with you having received the gross compound return that you would have got in an alternative product.

We can only speculate why they have offered you the getout, exactly as Thrugelmir has suggested. If the contract is not giving them the value or the risk/cost profile that they were expecting, they may not want to maintain it and be happy to exit and clear out their liabilities from as many customers as will take them up on the offer. Or if they feel they are open to some misselling accusations, it may be useful for them to ensure that investors have been given an exit on reasonable terms rather than forcing them to stay in it with risks that the investors no longer want.

Neither of those reasons mean it is a no brainer to leave or to stay. The fact that the bank would be happy to tear up the contract might doesn't automatically mean it must be a very lucrative contract for you or right for your circumstances - because the ultimate return from the product as it stands is unknown, and banks have a different view of risk and opportunity cost than you do, and their balance sheet can only be tied up in so many ways at one time, so there are a hundred reasons why they might want to wind down that product which do not translate to you making big bucks by keeping it.

You mentioned back in Jan that the range for this year was 7108. If the FTSE closes higher than that on a single trading day between now and late January, you get no coupon for this year. It has already closed at 6870+ in several separate weeks. So 7108 is only about 3.4% higher than previous peak and quite feasible. Then going forward from Jan next year, the 'range' of allowed values only goes up by 3% a year and it's not 3% of the 7108, it's 3% of the original 6181 which is only 185 points of headroom for every incremental year until 2019.

So, it's entirely feasible that it never pays a coupon ever again, in which case you would still have your 7 in the bank now and not receive another penny until you get the 100 back in Jan 2019 (at which point it might be worth well under 90 in real terms). Given other opportunities for cash or investments that you might like to use, terminating the product could be a perfectly reasonable choice.