Post Office Five Year Saver

mrbluejay

Looking to invest some money (Min £1k).

Don't mind a bit of risk in terms of a return, liked the look of the PO offer. Effectively, half is a flat rate and half is against the FTSE100 index and a return is calculated at the end of the 5 year period.

http://www.postoffice.co.uk/portal/po/jump1?catId=19300232&mediaId=35400672

Is this offer any good and are there many/any better alternatives.

Aegis

Pretty poor overall. Guaranteed Equity Bonds generally are. I'm sure someone will be able to point you in the direction of a half decent one, but from memory the Post Office one is pretty rubbish when you actually look at what might actually happen over those 5 years.

mrbluejay

Aegis wrote: »

Pretty poor overall. Guaranteed Equity Bonds generally are. I'm sure someone will be able to point you in the direction of a half decent one, but from memory the Post Office one is pretty rubbish when you actually look at what might actually happen over those 5 years.

So what kind of investment would be better to consider ?

Aegis

mrbluejay wrote: »

So what kind of investment would be better to consider ?

If you want to invest, then a pure investment product. If you want security of capital, then a cash product. If you want a mixture of the two, then invest some and put the rest into cash. If you really want a Guaranteed Equity Bond, then I believe there's a good one that effectively generates 14% a year or something unless the FTSE drops to below 50% of the initial value. I'm not an expert on that one, but I think some others here have been looking into it and will be able to give you more details.

However, the number of GEBs that I've seen on here that HAVEN'T been called awful is either 1 or 2. The rest are generally poor, so steer clear unless you understand what they're offering and what you could get elsewhere.

Milarky

mrbluejay wrote: »

So what kind of investment would be better to consider ?

People will tell you that you get upto 4% dividend just on the FTSE by holding the shares (or ishares) directly. That's 4% pa GEBs don't return - that 2% pa off your return (assuming a 50% weighting) Then there's a fixed rate of just 5.5% for 5 years - probably 1% pa less than a proper fixed rate deposit (another 0.5% allowing for the weight) . Then there's the inabilty to time your own exit...

Basically any 'do-it-yourself' approach (mixed cash and investments) is already 2.5% pa better than a GEB

Aegis

Milarky wrote: »

People will tell you that you get upto 4% dividend just on the FTSE by holding the shares (or ishares) directly. That's 4% pa GEBs don't return - that 2% pa off your return (assuming a 50% weighting) Then there's a fixed rate of just 5.5% for 5 years - probably 1% pa less than a proper fixed rate deposit (another 0.5% allowing for the weight) . Then there's the inabilty to time your own exit...

Basically any 'do-it-yourself' approach (mixed cash and investments) is already 2.5% pa better than a GEB

My understanding was that it was 5.5% fixed on half of the amount invested, making it a rate of 2.75% on the full amount. Much worse!

Baldur

As a non-expert, it's not a product which would appeal to me.

The flat rate portion aside, IF there is growth in the FTSE 100 over the 5-year period, you only receive 50% of it.

IF no growth, you are only guaranteed your original investment back, which could make the overall return on both 'pots' of money a paltry 15.35% (just over 3% annually) over the 5-year period.

I'm sure that some of the experts will point you elsewhere.

Etccarmageddon

birmingham midshires do what appears to be a better one.

http://www.askbm.co.uk/savings/t/geb/product.asp?id=131

Aegis

Etccarmageddon wrote: »

birmingham midshires do what appears to be a better one.

http://www.askbm.co.uk/savings/t/geb/product.asp?id=131

Better but still rubbish. Growth in the index value is LESS any dividend payments made by FTSE 100 companies over that 5-year period. Every time a dividend is paid, the share prices will drop slightly, making the index drop slightly. As such, you lose out on 4% or so of the FTSE's growth compared to buying a tracker over that time. Quite a price to pay for the guarantee that you won't lose anything (other than the fact that you'll lose money in real terms due to inflation, making your guaranteed sum about 20% less in real terms from the start to the end of the tie-in period with the current RPI figure used).

Personally I'd rather drip-feed into a diversified portfolio over a 5-year period and see where I stand at the end of it. At least with that strategy, I take advantage of short-term falls and long-term gains while retaining the option to sell at any time during or after the 5-year period if circumstances change.