Abbey Guaranteed Growth PAln 10 (5.5 Year) - A bad investment?

DRS1

You might want to have a look at this thread. Hopefully it is the one where dunstonh gives his view on a worthwhile GEB - about the only one.

http://forums.moneysavingexpert.com/....html?t=719557

The thing to remember when you read the thread is you are coming at this from a different angle to most people. You want to compare them to savings, whereas those who criticise them are really comparing them to investments.

anniecave

scarter - one practical problem (if you can call it that) of having large amounts of money just in savings accounts is that if the banking system collapses the maximum payout under the compensation scheme is £35,000 (I think) per institution. So if you have £100,000 you'd need to spread it over at least three providers to be covered, and depending on your theories on whether the "foreign" banks (icici, icesave, kaputhing etc) are to be trusted or not you may not want to put as much at the highest rates as you might first think. Regular savers can be good but can be a lot of work eg the top rates are only on products for a year or so, so you can only put the same money in and then get it out again.

I've been building my savings up with a view to maybe buying my first property so I've been moving money between top paying savings accounts for a while now and it does take work.

I'd put money into cash ISAs at least if you can - tax free future savings income - always good - but again you need to keep an eye on the rates!

Investment products are a different kettle of fish but I hope you figure it all out!

PBA

DRS1 wrote: »

I confess I don't know if there are penalties for closing the super bond early but if it is caused by your mothers death then that would seem harsh to me. Better check with Abbey before you close it just in case.

There's no penalty for closing the bond early, but also it doesn't need to be closed on death, it can be transferred into the name(s) of the beneficiaries and left to run until maturity. I'd agree with what other posters are hinting at, unless you need the cash now you'd be better off transferring the bond into your names and keeping it until the end of the term. There's nowhere else you're going to get 8% at the moment, without taking out another new growth plan.

RayWolfe

Deleted_User wrote: »

The man at the Abbey who's been advising me currently has the job title of 'Financial Advisor' so that's how I refer to him. If and when his job title changes to something else I'll use that title. I'm not making any assumptions about anyone's qualifications - just using the man's current job title so people know who I'm talking about.

You are rather missing dunstonh's point.
He is trying to get you to think about the motives of the bank "advisor". He may be the best person in the world giving you genuinely good advice. However he cannot be giving you the BEST advice because he can only SELL you his banks products which may or may not be the best product.
.... and for a start he has "advised" you to put all your eggs in one basket, never sensible.
So, armed with dunstohn's words of wisdom, you will be better armed to consider you options.

[Deleted User]

RayWolfe
I'm not missing his point at all. I have no intention of relying on ANY single financial advisor - independent or otherwise. Given the circumstances at the time, putting everything in the hands of the Abbey was the most practical thing to do. Thrown into those circumstances again I'd make the same decision. I know that my money is reasonably safe with a well established bank if I tell them I'm not a risk taker. I also knew I wouldn't get the best return on my investment by sticking with a single bank. I knew I didn't have the time or inclination to think about what I was being advised to do at the time and felt that this was a safer bet than some independent guy who's background and reputation I didn't have time to research. In retrospect, I feel my mistake was to tie up the money for long periods at a time when I wasn't in a position to research the implications. But then again, at the time we were in such crisis that I just wanted the money out of the way and forgotten.

My family's only dealings with an independent financial advisor was when my dad retired with a huge lump sum to invest. He's always played things safe and stuck with savings. The Independent Financial Advisor talked him into investing in *VERY SAFE* shares and my dad reluctantly went along with it as he was more or less told he was throwing his money away otherwise. That was right before the big stock market crash in the 80's. He lost most of it overnight!! So on this occassion if Dad had stuck with the bank's financial advisor or made his own decisions he'd have been better off!

SO to reiterate - I'm not using ANY financial advisors now or in the future. I'm referring to a financial advisor I used in the past - a Financial Advisor that has always made it clear he advises on Abbey products only. He is a qualified financial advisor (qualified to work as an Independent Financial Advisor if he chooses) that happens to work for the Abbey and advise on their products only.

My purpose in this thread was to get lots of opinions on the investment that I've got (which is only part of the total amount invested) so that I can decide whether to cut my losses and get it invested elsewhere.

I hope that's clear

PBA

There's no penalty for closing the bond early, but also it doesn't need to be closed on death, it can be transferred into the name(s) of the beneficiaries and left to run until maturity.

I'll double check that. I seemed to remember at the time we set them up that the GGP could be transferred to the beneficiaries but not the bond. Although we're about 10 months into the 1 year bond so we're talking about 2 months interest at 1.5% more than the leading instant access account. Which I guess isn't much?

DRS1

You might want to have a look at this thread. Hopefully it is the one where dunstonh gives his view on a worthwhile GEB - about the only one.
http://forums.moneysavingexpert.com/....html?t=719557
The thing to remember when you read the thread is you are coming at this from a different angle to most people. You want to compare them to savings, whereas those who criticise them are really comparing them to investments.

The links not working? But you're ABSOLUTELY right. I'm not interested in investments UNLESS the guaranteed amount can match (or very nearly match) the best I can get in savings accounts. Also, whilst I don't need access to the money I'm not really keen on tying it up for several years and taking a gamble that interest rates will fall. I'd much rather be free to move it around to what's currently doing best.

I'm trying to figure out for sure that I really am best to just leave the money where it is. I want to make sure it's not so bad that I'd be better cutting my losses and cashing it in now. Some of the threads have read that way, but as you say, I think they are comparing with investments and not savings. Considering the points you've raised re tax etc I don't think it's too bad.

Anniecave

scarter - one practical problem (if you can call it that) of having large amounts of money just in savings accounts is that if the banking system collapses the maximum payout under the compensation scheme is £35,000 (I think) per institution.

Yes, I noticed that on the main website. And I plan to take this into account. Aside from these bonds I have around £80,000 to invest and I'm planning on following all the advice on the main site and just doing what you do and move it to the best paying accounts. So ISA's first, then Regular Savers, then high interest Instant Access. We can split it between my self and my parnter which means we can effectively put double the amount in the best accounts.

The Abbey Financial Advisor pointed out at the time that there was always the risk of a bank folding and you loosing your money, but he pointed out that Abbey was owned by Santander which was one of the biggest companies in the world. However, in the current climate I'd rather not take the risk!

I've been building my savings up with a view to maybe buying my first property so I've been moving money between top paying savings accounts for a while now and it does take work.
I'd put money into cash ISAs at least if you can - tax free future savings income - always good - but again you need to keep an eye on the rates!
Investment products are a different kettle of fish but I hope you figure it all out!

If you've been trying this for some time I'd appreciate your input on this thread:

http://forums.moneysavingexpert.com/showthread.html?t=983973

I'm not interested in investments either - I much prefer to stick to savings. I only went with this investment because I understood that the guaranteed amount was as good as a decent savings account so I thought I had little to loose and a tiny chance of doing well.

Can anyone tell me - what is the equivelent yearly interest to 25% for 5.5 years. And is the 25% interest that this bond earns income tax free (only subject to capital gains tax if the interest is above a certain amount)? DRS1 - I know you've been trying to explain this to me but I'm not quite getting it!!!!

Say for example I put my money in a savings account earning 6% how much would I have (after tax) in 5.5 years.

And how much will I have after tax with this GGP (assuming there is no capital gains tax to pay)?

[Deleted User]

DRS1 wrote: »

You might want to have a look at this thread. Hopefully it is the one where dunstonh gives his view on a worthwhile GEB - about the only one.

http://forums.moneysavingexpert.com/....html?t=719557

The thing to remember when you read the thread is you are coming at this from a different angle to most people. You want to compare them to savings, whereas those who criticise them are really comparing them to investments.

OK, I managed to find this thread.

But if I understand it the one I have with the Abbey is actually better for me because the guaranteed amount is better (worst case scenario 25% in 5.5 years)?

So the ONLY question is whether I'd have been better off with savings accounts. I'd never have agreed to investments that involved any risk to capital or even risk of a very low return. If I made lots of money it'd be a one day cellebration and then forgotton. If I lost it would haunt me for years. What I'm not sure about is whether 25% in 5.5 years is a low, medium or good return compared to what's currently available in savings accounts (or what was available in Sept 07)

DRS1

People will correct me if I am wrong but I think we were seeing 1 year bonds knocking on the door of 7% gross in Sept 07. Let's say you could have found a five and a half year bond for that (unlikely I know) and let's say the net interest rate on 7% is 5.6%, I work out that on £50K you would get just under £17,500 net interest over five and a half years. If you are a higher rate tax payer that comes down to about £14,000 I think. Compare that with the 12,500 minimum on the Abbey GGP (I am not sure whether that will be above or below the CGT annual allowance by then but let's hope so).

So yes you could have been better off if you had managed to lock into a 7% bond for that period but I doubt one was available and if you had gone with a one year bond who knows what interest rates would have been in 1 2 3 or 4 years time.

One thing I did work out before I bought into my version of the GGP (foolish admission) was that the more you put in the worse the figures look - you want to try to use up the CGT annual allowance but not much more. OK that was before they changed the CGT rates so perhaps the balance has swung a bit more in favour of the GGP but I think you ought to heed the diversify message above and spread your money around a bit more. Now may not be the time for stock market investments but as people say some cash ISAs and perhaps some "normal" fixed rate bonds over a spread of time scales might be a good plan.

DRS1

And is the 25% interest that this bond earns income tax free (only subject to capital gains tax if the interest is above a certain amount)? DRS1 - I know you've been trying to explain this to me but I'm not quite getting it!!!!

I have a different issue of the GGP from your one so you should confirm with the Abbey adviser but there is no income tax on the "interest" (I don't think it is really interest at all but it is easier to think of it like that). What you have are shares in an investment vehicle and when the GGP matures I think you are treated as selling those shares making a capital gain. You are allowed to make a certain amount of gain each tax year without paying CGT on it; this is called the annual allowance. Last year that was £9,200. It goes up each year (well as long as the Chancellor says so in the Budget). As long as your gains in a tax year are below the allowance for the year you pay no CGT on the gains. Does that help?

DRS1

Say for example I put my money in a savings account earning 6% how much would I have (after tax) in 5.5 years.

6% = 4.8% net

I work out that on £50k that would get you interest of £14,725 after 5.5 years.

nicko33

Deleted_User wrote: »

What I'm not sure about is whether 25% in 5.5 years is a low, medium or good return compared to what's currently available in savings accounts (or what was available in Sept 07)

For comparison, 25% in 5.5 years is equivalent to 4.14% per annum.

I don't know if there are tax advantages to the GGP that would make it compare better.