Shepherds Friendly 5% 5 Year Fixed Rate Bond

fabsaver

I've been looking at this in comparison to currently available 5 year cash ISAs.
https://www.shepherdsfriendly.co.uk/5-year-fixed-rate-bond/

Pros
Guaranteed 5% per year for 5 years, higher than any currently available fixed term cash ISA
Not taxable for basic rate taxpayers
Full FSCS protection

Cons
No access until end of term, unlike a cash ISA
Returns significantly less if bondholder dies before end of term
Tax treatment may change in the future

I'm fully expecting that it is not going to be popular on here. Please go ahead and point out all the downsides I may have missed.

bristolleedsfan

fabsaver said:

I've been looking at this in comparison to currently available 5 year cash ISAs.
https://www.shepherdsfriendly.co.uk/5-year-fixed-rate-bond/

Pros
Guaranteed 5% per year for 5 years, higher than any currently available fixed term cash ISA
Not taxable for basic rate taxpayers
Full FSCS protection

Another Pro is £100 LTS voucher on £10000+ fixed rate deposit

Why does it state  "Unlimited FSCS protection Even if you save up to the maximum of £125,000, your savings are completely covered"

When FSCS compensation protection limit is £85000 ????? 

happybagger

Not what I expected when I looked at this, wasn't aware they did this sort of product.

As you say:
Downside only appears to be if you die, the estate only gets it paid at 1%
Upside is FSC over £85k

Not sure I'd head for this as there are other 5yr bonds available at slightly above 5% anyway

Band7

bristolleedsfan said:

fabsaver said:

I've been looking at this in comparison to currently available 5 year cash ISAs.
https://www.shepherdsfriendly.co.uk/5-year-fixed-rate-bond/

Pros
Guaranteed 5% per year for 5 years, higher than any currently available fixed term cash ISA
Not taxable for basic rate taxpayers
Full FSCS protection

Another Pro is £100 LTS voucher on £10000+ fixed rate deposit

Why does it state  "Unlimited FSCS protection Even if you save up to the maximum of £125,000, your savings are completely covered"

When FSCS compensation protection limit is £85000 ????? 

Not just misleading, but false. Crooks. Complain to the FSCS.

Albermarle

Normally Friendly Society products are not very good, so I was a little surprised to see this,so checked the detail .

It is NOT a fixed rate savings product. It is a 'life assurance savings plan'  and the money is invested in a With Profits Investment fund ( run by Royal London) That is how it has unlimited FSCS cover (although the max you can invest is £125K) 
However although it is an investment, they guarantee to repay the capital + 5% a year for 5 years after 5 years . I am not sure how they can guarantee that, as even a with profits fund can struggle in bad times.

Apart from that the only downside seems to be that unlike a 5 years saving bond, there is no compounding of interest each year. Plus if you die your estate will not get any interest up to that date . Only the capital back and a small amount extra.

Band7

There are other, trustworthy, providers offering up to 5.1% for 5 year bonds https://moneyfacts.co.uk/savings-accounts/5-year-fixed-rate-bonds/?quick-links-first=false

fabsaver said:

I'm fully expecting that it is not going to be popular on here. 

Apart from the false FSCS claim, what other reasons are there for this to be unpopular?

diystarter7

happybagger said:

Not what I expected when I looked at this, wasn't aware they did this sort of product.

As you say:
Downside only appears to be if you die, the estate only gets it paid at 1%
Upside is FSC over £85k

Not sure I'd head for this as there are other 5yr bonds available at slightly above 5% anyway

Surely that can't be right/legal etc. Having said that but slightly different is when you sell the home you are living in and get a bit of money for it and if you die the same/next day etc the company that sold you the deal gets the money.
Or am I getting confused here?
Thanks

dunstonh

When FSCS compensation protection limit is £85000 ????? 

The deposit protection is £85,000.  This plan is a single premium non-qualifying endowment policy.    . So, it gets 100% FSCS protection with no upper limit.

Not just misleading, but false. Crooks. Complain to the FSCS.

It is not false in respect of the FSCS.  However, it is false in referring to itself as a 5 year fixed rate bond. It is not.  It invests in their With-Profits fund under the insurance tax wrapper.  Their key facts document does correctly refer to itself as a life assurance.

There is a possibility that the FSCS coverage in their terms is wrong but as it hasn't been tested either way, you cannot be sure.  SCARPS used to advertise as having FSCS protection but when they started to fail, the FSCS found that only if the issuer failed would there be FSCS protection. If the market counterparty behind failed, then there would not be FSCS protection.    in this case, Shepherds Friendly are the issuer but they say Royal London are the counterparty.    But in this case, they say there would still be FSCS protection.   They may be right.  But their interpretation may be wrong. 

Other issues are that it is not interest paying.  As it is a single premium non-qualifying endowment policy, it is treated under income tax.      The gain will be added to your income in the year of maturity.   If you remain a basic rate taxpayer or lower, then there will be no further tax to be paid.  If it takes you into the higher rate band or you are already a higher rate taxpayer (or additional), then further tax will be payable to to the appropriate level.

If you are on means-tested benefits, the gain on maturity is treated as income and can result in your benefits being lost or reduced.    e.g. if you just qualify for pension credit then the maturity of this could see you lose your pension credit. 

diystarter7

dunstonh said:

When FSCS compensation protection limit is £85000 ????? 

The deposit protection is £85,000.  This plan is a life assurance. So, it gets 100% FSCS protection with no upper limit.

Not just misleading, but false. Crooks. Complain to the FSCS.

It is not false in respect of the FSCS.  However, it is false in referring to itself as a 5 year fixed rate bond. It is not.  It invests in their With-Profits fund under the insurance tax wrapper.  Their key facts document does correctly refer to itself as a life assurance.

There is a possibility that the FSCS coverage in their terms is wrong but as it hasn't been tested either way, you cannot be sure.  SCARPS used to advertise as having FSCS protection but when they started to fail, the FSCS found that only if the issuer failed would there be FSCS protection. If the market counterparty behind failed, then there would not be FSCS protection.    in this case, Shepherds Friendly are the issuer but they say Royal London are the counterparty.    But in this case, they say there would still be FSCS protection.   They may be right.  But their interpretation may be wrong.     

Sorry, I too don't follow and just read about the "125k" covers by FSCS, how can that be when the guaranteed cover is only 85% the rest is don to circumstances/etc?
Thanks

fabsaver

Albermarle said:

Apart from that the only downside seems to be that unlike a 5 years saving bond, there is no compounding of interest each year. 

I thought that at first but the performance scenarios in the KID do appear to include compound interest. The return after investing £10,000 for 5 years is stated as £12,762.

dunstonh

Sorry, I too don't follow and just read about the "125k" covers by FSCS, how can that be when the guaranteed cover is only 85% the rest is don to circumstances/etc?

You are referring to the deposit protection scheme side of the FSCS.  There is an investment protection scheme and an insurance protection scheme within the FSCS.  

This product is a single premium, non-qualifying endowment policy.   So, it falls under the insurance FSCS protection side.  That has 100% FSCS protection with no upper limit.     As this endowment policy allows a maximum of £125,000, that effectively becomes its limit.

I thought that at first but the performance scenarios in the KID do appear to include compound interest. The return after investing £10,000 for 5 years is stated as £12,762.

The endowment policy is not an interest paying product.