Santander Guaranteed Capital Plus (Issue11)

purpleclaire

I invested £11000 in Santander's Guaranteed Capital Plus (Issue 11) 5 and a half years ago; it is coming to an end on 18 March and I don't know what I should do with the money next. It's an ISA and I have no inkling of my return on the investment, as the paperwork gives a minimum maturity value(capital plus 0.5%) and maximum maturity value(capital plus 37%). It's related to the FTSE 100 Index, but I don't have any idea how much I will see after 5 and a half years.
Any thoughts on the return value?
Santander have sent paperwork suggesting I transfer it into Capital Plus (Issue12) with minimum and maximum rates of 2.5% and 22%...is this any good?
Any suggestions for the best return - I'm happy to tie the money up for a few years.

PeacefulWaters

The starting point is establishing what the FTSE 100 was at the start of the plan. Your paperwork should tell you the key start date (along with a fib or two about FSCS coverage that didn't exist).

And then you need to understand how and when they calculate the end point.

A search came up with this to answer the second question.

The Guaranteed Capital Plus (Issue 11), is available for a 5.5 year term on a minimum investment of £1,500. Customers will receive a 37 per cent return if the FTSE 100 Index has remained the same or increased at the end of the term, compared to the opening index level, or a guaranteed minimum return of 0.50 per cent, if the FTSE 100 Index has decreased. with six month daily averaging over the end of the term.

bowlhead99

purpleclaire wrote: »

It's an ISA and I have no inkling of my return on the investment, as the paperwork gives a minimum maturity value(capital plus 0.5%) and maximum maturity value(capital plus 37%). It's related to the FTSE 100 Index, but I don't have any idea how much I will see after 5 and a half years.
Any thoughts on the return value?

You are the one that has the paperwork that says what are the criteria for paying out the minimum and maximum maturity value. So, what are those criteria? What are the circumstances that makes it pay out the most?

If it is like this one (http://www.prnewswire.co.uk/news-releases/abbey-and-alliance--leicester-launch-new-guaranteed-investment-products-156347895.html) then either the daily FTSE 100 figure averaged for the last 6 months is over the value at a defined start date, and it pays out the full 37%, or it is below the start value and it pays out the 0.5%. There is no middle ground. However, you should check the product documentation to see what it says it will pay in what circumstance.

For the last 6 months the FTSE 100 has bobbled around between 6200 and 6900, so its average value is going to be well over the 5100 or so that it was at about 5.5 years ago, so it sounds to me like it will just pay the 37%.

For comparison if you had just bought a FTSE100 index tracker, whose performance is driven by that same index, the return from capital and dividends in that 5.5 year timeframe would probably have been between about 55 and 60% depending what product provider you used, what management fee you paid and exactly what happens to the FTSE over the next week (it fell 2.5% in just one day yesterday).

Of course, that would have been a riskier investment and not suitable for anyone like you who wanted to protect their capital because you could have lost a large portion of your initial investment. So it seems like the insurance cost of protecting your capital in this case was about 20% - about a third of the returns that a specialist investment fund like a FTSE tracker actually delivered.

Generally a lot of protected capital 'guaranteed' structured products are poor value because they are sold by the bank's tied sales team (who can only offer one or two products from their own inhouse range) rather than the full competitive range of investment products that are out there in the wide world. and in some cases the guarantee is not worth the paper it is printed on. Santander were offering compensation in recent years to investors who had been 'duped' into getting similar products without fully understanding the risks, allowing them to leave early and take a fixed portion of the potential payout. Now you have stuck it out to the end, you should get the promised payout based on the product T&C.

Still, that doesn't fill you with confidence that you should just go and buy something else from them. Especially when you don't seem to understand what the basics are (i.e. "it's linked somehow to FTSE100 but I don't know how much I'll get").

Santander have sent paperwork suggesting I transfer it into Capital Plus (Issue12) with minimum and maximum rates of 2.5% and 22%...is this any good?

I'm guessing you haven't fully assessed the likelihood and probability of getting 22% or 2.5% or complete loss on the new Issue 12 product which is why you are on here. Probably in part because of the trouble they got into when marketing these products in the past, the terms of the new Issue 12 don't seem to be advertised anywhere I can see them (with a quick google search).

By complete (educated) guesswork I am going to say it will not be a great product, because it is sold by a highstreet bank to existing customers with spare money from a maturing product, who will blindly buy it without taking professional independent advice.

Any suggestions for the best return - I'm happy to tie the money up for a few years.

That is a completely unanswerable question.

The best potential return comes from the highest potential risk of losing all your money. If you invested in an index tracker fund you might make 50%+ or lose 50%+, if you invested in a share of an individual company you might make 300% or lose 100%.

The safest return is to get a 5-year fixed deposit (e.g. http://www.moneysavingexpert.com/savings/savings-accounts-best-interest? shows Close Brothers pays 3%AER which compounded for five years year after year would be about 16% with no loss of capital).

Or you can put the money in a Santander 123 account and get paid 3% for the first year and then look to take a fixed deposit some point later when interest rates have perhaps gone up.

So, the 'best' return for you depends on what combination of risk you want. The range of returns possible is 300% for a the risk of losing all your money, down to 16% for the risk of losing none of your money. If you want some risk you could put some of the money into a cash product and some into an investment product. It depends what range of returns you are willing to accept.

Personally if I can see that a fixed rate bond pays 16% I would not choose a structured product that only allows that to be boosted up to 22% if things go well when it will drop all the way to 2.5% if things do not go well. Seems a ludicrous balance even if you are confident about the direction of the stockmarket. Perhaps the new one has a shorter term or I am missing something.

Personally I would buy an investment fund rather than make a cash deposit because the likely long term returns are far better and I want long term returns and don't need the money back. But if I needed the money back in 5 years then I probably would have kept much more of it (maybe all of it) in cash. What I wouldn't do is buy a Santander structured investment product.

We don't know if you really need the money back in the next 3 or 5 years - clearly you did not need the money back after your first 5.5 years or you would not be here asking what to do with it. Or whether you are willing to take a gamble with the returns from a fixed cash deposit for potentially a bit more or potentially a lot less while preserving capital. Or whether you would risk some portion of your capital as well to open up more conventional investment options on a longer term investment fund, and if so, how much of your capital would you be willing to lose.

jimjames

Ouch!

Seeing the return mentioned here shows how poor value these types of plan are.

The FTSE has approx doubled since 2009 with dividends on top yet this will pay a maximum of 37% if all criteria met.

For the new money hopefully you can see there are far better ways to invest especially if you don't need access for some time.

badger09

Great post bowlhead99, if a little harsh:o

purpleclaire, please don't take this the wrong way, but you really need to provide more information if you want helpful suggestions

e.g
do you have any debts?
do you have a mortgage and what interest rate?
do you enough readily accessible savings to cover unexpected expenses/job loss etc?
do you have pension provision?
do you have other savings/investments?
when will you need this money?
can you afford to lose some of it?
etc etc

I too took out a similar Santander (or Rather Abbey National;)) product many years ago, because at that time, I knew very little about investing. I did though know the absolute minimum I would get back

Come back with a bit more information and I'm sure bowlhead99 and others will help