Castle Trust. Saving Bond

Touchstone_2

Has anyone any experience of Castle Trust.
I have seen on the web that Castle Trust are offering fix term savings bonds for 1 or 2 years. The 1 year term, the interest rate is 2.23% (I think, cant remember but it is over 2%)minimum deposit is £1000. Deposits have to be made by debit card and it is only open to UK residents, this can be done on line or by phone. It also seem to offer some sort of savings/purchase scheme for house purchase, but it is the savings bond I am interested in.Its a relatively new company start up 2012. Money is protected by the bank guarantee scheme.
Its the best rate for 1 year I can find and the blurb says it closes end August
Any comments please?

ColdIron

This is not a savings product but an investment, a short term corporate bond. Your capital is not protected in the same way that a cash deposit would be with the £85K FSCS protection and is subject to the usual investment risks such as default

bowlhead99

Just to echo what Coldiron said:

Touchstone wrote: »

I have seen on the web that Castle Trust are offering fix term savings bonds for 1 or 2 years.

They do not describe them anywhere as savings bonds. They are investment bonds.

The 1 year term, the interest rate is 2.23% (I think, cant remember but it is over 2%)minimum deposit is £1000. Deposits have to be made by debit card

Again, they do not describe them as deposits. Unlike a savings account with a bank, you are not depositing cash with them for safekeeping. You are investing in a financial instrument which pays a fixed return if they are still solvent after a year.

Money is protected by the bank guarantee scheme.

It is not the bank savings guarantee scheme for £85k. It is the general investments guarantee scheme which may give you cover for £50k if Castle Trust becomes insolvent. If you are unclear on the implications you should do more research.

Its the best rate for 1 year I can find and the blurb says it closes end August

The blurb at https://www.castletrust.co.uk/products/fortress-bond/ said applications for the August bond (2.25% AER) closed on 31 July, however it's quite possible that they are also offering another one each month as an ongoing rolling programme to support their mortgage lending business, and just need to update their website.


Unlike some of the property investment companies making outrageous claims about 20% guaranteed returns, I would not say "avoid! avoid!". They are a proper business, albeit much smaller than a typical mainstream bank. You can hold your investment inside an ISA which they will run for you but it would be an investment ISA not a cash ISA. You will not be able to get your money back early and suffer an interest penalty, because they have no obligation to give you anything other than what the extensive T&Cs document states.

For some people, this product would work for them as for example a high rate taxpayer getting 2.25% inside an ISA wrapper is as good as a 3.75% return outside an ISA and then paying tax. However, with investment ISAs there are lots of other opportunities yielding 2%+ depending on how much risk you want to take.

Better_Call_Saul

It says in the blurb that the bond is eligible for a Stocks and Shares ISA. This makes me think it is similar to a Structured Product. At the rates they offer I wouldn't bother tbh.

bowlhead99

A structured product is a pre-packaged investment product based on derivatives and other financial instruments that aims to deliver a certain level of return (e.g. return X if the market hits a target but return Y if it doesn't and not less than Z if the market goes really badly, because of the built-in insurance that's in place unless everything goes really really badly).

Whereas this is just a loan to a company which will be used by them for their mortgage business.

dunstonh

Castle Trust. Saving Bond

Its not a savings bond (as mentioned higher up). It is a corporate bond (loan note)

Money is protected by the bank guarantee scheme.

It is not protected by the deposit protection scheme. it falls under the investment scheme which is very different.

Any comments please?

You have turned this at risk product into something it isnt. It is illiquid, with potential capital losses and no FSCS deposit protection (just investment). It is not suitable for a mainstream investor let alone someone looking for a savings bond. It is not a dodgy option and there is nothing wrong with it on face value for what it reports to be. However, it is not what you think it is.

kidmugsy

bowlhead99 wrote: »

Unlike a savings account with a bank, you are not depositing cash with them for safekeeping.

When you deposit money at a bank it is not for safe-keeping: that is the purpose of a vault, not a bank. When you deposit with a bank you are lending the bank money. That's the legal position and it's as well that people be aware of it. They should also be aware that the FSCS isn't a government scheme.

"The FSCS is the UK's statutory fund of last resort for customers of financial services firms. This means that FSCS can pay compensation to consumers if a financial services firm is unable, or likely to be unable, to pay claims against it. The FSCS is an independent body, set up under the Financial Services and Markets Act 2000 (FSMA). We do not charge individual consumers for using our service."

bowlhead99

kidmugsy wrote: »

When you deposit money at a bank it is not for safe-keeping: that is the purpose of a vault, not a bank. When you deposit with a bank you are lending the bank money. That's the legal position and it's as well that people be aware of it.

Sure, the substance of a savings transaction is that the bank now has your cash and can do with it what it likes, and owes it back to you ; that is how it appears on its published balance sheet. Versus safekeeping where someone is literally holding cash or another item to keep it safe for you but you keep all the benefits and liabilities of ownership.

The distinction I was intending to draw using an analogy, between both of those things on the one hand, and an 'investment' on the other, is the same that the FSCS draw.

If you deposit something into 'your' account with a bank, it is analogous to depositing an item into a bucket that someone else is looking after for you. You expect to receive it back, maybe with interest or maybe after fees, depending on the terms of this deposit account. If you don't get it back, the FSCS should pay out, up to the nice high limit of £85k.

By contrast, exchanging your cash for a financial instrument like a share or a loan note is not like depositing an item in your bucket. It is like giving someone an item and getting something different in return.

That thing you receive in return has a different character from the cash or other item you started off with. At some point later (at fixed interest payment dates or on maturity, if there is one), you would hope that you receive something back (e.g., more cash than you started with) or if there isn't a maturity or it's too far off for you, it may be possible for you to sell this item on to somebody else on the market, depending on the character and terms and conditions of the instrument.

The EU rules on deposit guarantee schemes (harmonized at €100k compensation around Europe and implemented as £85k in the UK) explicitly exclude financial instruments from their scope. The FSCS's jargon buster explains 'deposits' as "money placed in a bank or similar institution to earn interest or for safe-keeping", and that's what they'll cover to £85k.

The longer-form definition of deposits from the EU talks about "a credit balance which results from funds left in an account or from temporary situations deriving from normal banking transactions and which a credit institution is required to repay under the legal and contractual conditions applicable, including a fixed-term deposit and a savings deposit, but excluding... [a financial instrument unless it's a certificate of deposit]... and blah blah"

By contrast, the world of investments, where you're holding a loan note or a share certificate or some other investment in your hand or in a nominee account or in an ISA or in a SIPP, is well outside the scope of the deposit guarantee scheme. The FSCS does some work in this area but in relation only to regulated firms, and there's a £50k limit which is only useful to you in certain circumstances (general investment risks aren't covered).

It's entirely true that the FSCS is not financed by the government - it's financed by the regulated financial services industry as a whole - although it is government / the laws of the land, that set the regulations one way or another.

Reaper

I'm guessing you saw the advert in a MoneyWeek email, that's where I noticed it.

It made me click the link and I have to say I think the ad and web site are intended to be somewhat deceptive, while just staying on the right side of the law.

They talk about Bonds but present it almost as if it were a savings account bond, and indeed it seems that it what you thought it was.

They also frequently mention £50,000 of FSCS protection however they do say this may cover you. That word is important as there is a good chance it won't.

Frankly as risk is involved I would expect a lot more return on my money before I would be tempted.

I could suggest a product with a similar or lower level of risk paying over 5% for 3.5 years fixed.

dunstonh

To be honest, I cant see how the FSCS could cover a standalone corporate bond.

I'm guessing you saw the advert in a MoneyWeek email, that's where I noticed it....<snip>

Given the poor quality of moneyweek that would not surprise me.

Tridhos

Reaper wrote: »

I'm guessing you saw the advert in a MoneyWeek email, that's where I noticed it.

It made me click the link and I have to say I think the ad and web site are intended to be somewhat deceptive, while just staying on the right side of the law.

They talk about Bonds but present it almost as if it were a savings account bond, and indeed it seems that it what you thought it was.

They also frequently mention £50,000 of FSCS protection however they do say this may cover you. That word is important as there is a good chance it won't.

Frankly as risk is involved I would expect a lot more return on my money before I would be tempted.

I could suggest a product with a similar or lower level of risk paying over 5% for 3.5 years fixed.

I was also thinking of investing 50K in this but I find it extraordinary that they can even mention the FSCS unless this investment does qualify. What is the use of the FSCS if it isn't there to police these sort of claims. Surely it should be required that anyone making such a claim should check whether it does qualify before investors get stung once again.