MSE News: Been a super-savvy ISA saver? Check you haven't hit savings safety limit

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  • Consumerist
    Consumerist Posts: 6,310 Forumite
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    colsten wrote: »
    I think this just proves jimjames' point - it is a good example of not understanding the risks. . .
    That seems to me to be a good enough reason to avoid them.

    Why invest in something you don't understand? Therein lies the road to ruin, as I see it.
    >:)Warning: In the kingdom of the blind, the one-eyed man is king.
  • jamesd
    jamesd Posts: 26,103 Forumite
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    Several issues with that article:

    1. It appears to assume cash ISA use but doesn't say so. This may mislead people who have money in a S&S ISA to think that they have £85,000 protection instead of the £50,000 they really have.

    2. Cash ISAs do not have to be deposit accounts that have the £85,000 deposit protection. They can be:

    a. non-deposit accounts (with a firm that is not a licensed deposit taker) with no FSCS protection at all.
    b. As a but voluntarily opted in to the FCA client money rules and covered by the £50,000 investment FSCS limit.

    3. A person who has £85,000 in a cash ISA is unlikely to be super-savvy, since that is a pretty poor place to have a lot of money long term.
  • colsten
    colsten Posts: 17,597 Forumite
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    edited 11 July 2014 at 1:46PM
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    evenasus wrote: »
    I did understand the risks.

    My reading of your experience is that you assumed one of the highest risks possible, and that this risk level wasn't really within your comfort zone. You went into it with your eyes wide open and realising that the charges are significantly higher than with a lot of other investments, plus that your investment would end after 5 years regardless off the market conditions at the time? That is brave, and not a risk that most people would take because it is way above their risk tolerance level.

    And it seems you didn't really want to assume these risks, either:
    evenasus wrote: »
    Personally, I am extremely risk averse.

    I made a similar mistake myself around 2000, when I took out a Virgin ISA. I realised later that I didn't really understand what I was doing at the time, and it was a terrible investment. It hasn't put me off investments though because it isn't investments that are dangerous, it was me who was a danger to myself.
  • jimjames
    jimjames Posts: 17,676 Forumite
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    edited 11 July 2014 at 12:35PM
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    evenasus wrote: »
    I took out a 5 year PEP with Marks & Spencer in 1997.

    Deposit in 1997....... £6000.00
    Maturity in 2002.......£5996.40

    They did deduct an admin charge of £3.60
    Fortunately, my capital was protected.

    This experience put me right off stocks & shares.
    evenasus wrote: »
    I did understand the risks.

    I don't understand why you'd sell out after 5 years? It sounds like this might not be a normal S&S ISA but some form of structured product based on the value of the FTSE on a specific date rather than a proper fund that invests in shares and has no defined period.

    Using such a product that includes certain guarantees and protections may make you feel more comfortable but won't get the return you'd have from investing directly - but it will be a smooth ride with no drops on the way.

    Automatically selling out on a specific day does sound like you didn't really understand it which is a shame if that has tarred your views on all investments that could be worthwhile for long term money that isn't needed for some time.
    Remember the saying: if it looks too good to be true it almost certainly is.
  • Pincher
    Pincher Posts: 6,552 Forumite
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    If only you can insure your fortune against loss.


    So, let us say you have £500k with Barclays, in various funds and cash deposits. Your "personal account manager", who is changed every six months, tells you they have this amazing new insurance product. In the event of Barclays going bankrupt, the insurance will pay out the balance not covered by the FSCS protection.


    Underwritten by the firm Lehmann Sisters.
  • evenasus
    evenasus Posts: 11,861 Forumite
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    colsten wrote: »
    You went into it with your eyes wide open and realising that the charges are significantly higher than with a lot of other investments

    I wouldn't call £3.60 high.
  • jimjames
    jimjames Posts: 17,676 Forumite
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    evenasus wrote: »
    I did understand the risks.

    You're right there.

    My husband took out a PEP with M & S the year before I did. If only I'd listened to him and taken mine out at the same time instead of dilly-dallying.

    My husbands PEP
    Deposit in 1996....... £6000.00
    Maturity in 2001.......£8132.10

    If you have a look at this link with your numbers

    http://swanlowpark.co.uk/savingscalculator.jsp

    You'll see if you invested £6000 in the FTSE directly in 1997 (not in a protected product) the only year when you would have lost money by cashing it in was 2002. In every other year between 1997 and now you would have been in profit and now your £6000 would be worth almost £14,000.

    Taking the money out at the worst possible time in the last 17 years really shouldn't cloud your judgement on risks especially when you chose a product that is more risky by being a fixed term where you have no choice over end date.
    Remember the saying: if it looks too good to be true it almost certainly is.
  • colsten
    colsten Posts: 17,597 Forumite
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    evenasus wrote: »
    I wouldn't call £3.60 high.

    I wasn't talking about the loss your investment made, I was talking about the charges that no doubt contributed to your loss. The trouble with "packaged" ISAs / savings plans / structured products is that the charges aren't very transparent to the investor. Though you can be 100% certain that their charges were more than £3.60, and probably easily a hundred or several hundred times more.
  • Pincher
    Pincher Posts: 6,552 Forumite
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    edited 12 July 2014 at 2:40PM
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    If a fund just took your money and bought some stocks and bonds, they are assets that are worth something, even in a recession, so you can't lose it all. I suppose if a fund only buys Barclays shares, and Barclays goes bankrupt, you would lose it all, but you would simply buy Barclays shares in your name in the first place, why buy a fund and pay fees.


    With structured products, the manager basically says why tie the money up in actual shares. We buy some futures and options so that we can benefit from any rises in five years time. In the mean time, let's invest the money to make even more money, and of course, pay ourselves a nice bonus for being so clever.


    If they bought gold at $300 and sell at $1,800 over the five year period, they have no intention of letting you have it. In fact, they could very easily say the FTSE went up by 10%, but the fees were 5%, so you get 5% over the five years.


    If it all goes pear shaped, and the FTSE AllShare falls by more than 1000 points in five years time, wheel out the small print that says heads you win a little bit, tails you lose everything.




    If you think it sounds like: "Lend me £10,000, and I will go to Vegas for the weekend. If I win, you get £10,500 back. If I lose, you won't see me again." You would be right.
  • jamesd
    jamesd Posts: 26,103 Forumite
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    The total charge wasn't £3.60. The FTSE pays about 3.5% in dividends each year and those are not included in the value of the index. The typical capital protected product only uses the index, keeping all of the dividends as profit. No disclosure of them keeping this was required, perhaps because it's assumed that everyone knows about it. If you had been getting the dividends that would have increased the value of them by something like 19%.

    3704 start of jan 1996. 6198 start of jan 2001
    3972 start of dec 1996. 5264 start of dec 2001
    5045 start of dec 1997. 4013 start of dec 2002

    Weekly peak was around 6930 at the end of dec 1999.
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