Shepherds Friendly

Gadjet87

Hello, I've recently noticed an ad from Shepherds Friendly offering a 2.25% AER for a 5-year fixed term. Which would translate to a staggering £225 per year for a 10k deposit. Is there a catch on this? As this is nowhere near what other suppliers offer. Thanks

Gary1984

It would appear to be an insurance product, albeit one that behaves very similarly to fixed rate savings. The key catch I can see is if you die in the 5 years it returns the full capital amount invested but a reduced amount of interest. This may be a requirement to ensure it's actually classified as insurance rather than a pure savings product.

Sandtree

Gadjet87 said:

Hello, I've recently noticed an ad from Shepherds Friendly offering a 2.25% AER for a 5-year fixed term. Which would translate to a staggering £225 per year for a 10k deposit. Is there a catch on this? As this is nowhere near what other suppliers offer. Thanks

worrying times when 2.25% is considered staggering against an inflation rate of 5.4%

Gadjet87

Being an insurance product, does that change anything significantly? Assuming I am happy to leave the money there for 5 years. Also, does it pose an issue when it comes to withdrawing your money after the term is finished? Thanks

MX5huggy

You’ll pay tax on all 5 years interest when it matures in year 5.

valiant24

Gadjet87 said:

Hello, I've recently noticed an ad from Shepherds Friendly offering a 2.25% AER for a 5-year fixed term. Which would translate to a staggering £225 per year for a 10k deposit. Is there a catch on this? As this is nowhere near what other suppliers offer. Thanks

Can't comment on the deal itself, but my kids had investments with them 15 or so years back and they played it straight down the line, so I'd have no concerns about their integrity.

wmb194

MX5huggy said:

You’ll pay tax on all 5 years interest when it matures in year 5.

In the 'important information guide' it says there will be no basic rate tax due:

"10.1 Since we pay tax on the fund which generates the return on the Bond, if you are a basic rate taxpayer when you receive any returns on your Bond, you should not be subject to further tax. It is not possible to reclaim the tax paid if you are not a taxpayer."

https://www.shepherdsfriendly.co.uk/5-year-fixed-rate-bond/

Daliah

valiant24 said:

Gadjet87 said:

Hello, I've recently noticed an ad from Shepherds Friendly offering a 2.25% AER for a 5-year fixed term. Which would translate to a staggering £225 per year for a 10k deposit. Is there a catch on this? As this is nowhere near what other suppliers offer. Thanks

Can't comment on the deal itself, but my kids had investments with them 15 or so years back and they played it straight down the line, so I'd have no concerns about their integrity.

After having a quick look at the information on their website. I am afraid, I would disagree. They are promising unlimited FSCS protectiion !!!!!!!!!! A provider with integrity would never make such false claims!

EDIT: Please ignore, see later comments

Aretnap

Daliah said:

valiant24 said:

Gadjet87 said:

Hello, I've recently noticed an ad from Shepherds Friendly offering a 2.25% AER for a 5-year fixed term. Which would translate to a staggering £225 per year for a 10k deposit. Is there a catch on this? As this is nowhere near what other suppliers offer. Thanks

Can't comment on the deal itself, but my kids had investments with them 15 or so years back and they played it straight down the line, so I'd have no concerns about their integrity.

After having a quick look at the information on their website. I am afraid, I would disagree. They are promising unlimited FSCS protectiion !!!!!!!!!! A provider with integrity would never make such false claims!

IF it is indeed a life insurance product which has been dressed up to look like a savings product then it will indeed have unlimited FSCS protection. 

Note the "if"; I can't speak to the technicalities of what precisely makes it insurance rather than savings. 

masonic

The KIID is here: https://shepherdsfriendly.blob.core.windows.net/wp-media/2022/02/5YFRB_Key-Information-Document_2022.02.pdf

It is a with-profits investment product. Capital is not at risk, but it looks like interest would be if Sheperd's Friendly became insolvent before the 5 year term was up (as no interest would be accrued).

I don't know why someone would opt for this and not a standard 5 year fix at 2.2% with FSCS cover for interest accrued during the term as well as capital. Personally, I wouldn't fix for 5 years in a high inflation, rising interest rate climate.

dunstonh

Deposit accounts do not get unlimited FSCS protection.   Insurance investments do.   However, insurance investments do not receive interest.

The KID says it is a 5 year with-profits life insurance policy.   Except you do not get the profits.  Instead, you get a fixed amount.   Effectively, you are giving up the investment return, whatever that may be, in return for what is likely to be a much smaller amount but guaranteed.      There are no explicit charges as the provider profit is on the difference between the return and the fixed amount.  i.e. if the product returns the equivalent of 5% a year, you get 2.25%.  If the product loses money, you get 2.25% and the provider suffers the loss.

Key risks are:
1 - you cannot access the money in that 5 year period (no partial or full early withdrawals) - except the usual extreme events.
2 - we are in a cycle of increasing interest rates and inflation.   5 years is a very long time to lock in at this point
3 - It is not a fixed term deposit/savings account but life insurance 
4 - Tax works on the basis of insurance investments.   As it has a policy term of less than 10 years, it is a non-qualifying insurance policy.    This means, on maturity, it creates a chargeable event.   Not an issue for basic rate taxpayers or lower but could be for higher rate or above (or those close to being)
5 - If the provider goes insolvent, only your original investment is covered by the FSCS.