iDAD launch issue 4 of the market leading Structured Deposit (Capital Secure) Plan with Goldman Sachs as the Issuer
iDAD have launched issue 4 of a market leading headline structured deposit plan-with Goldman Sachs as the counterparty. It’s a product that must be considered as part of an investment programme.
Deposit Plan – Capital Protected with FSCS protection up to £85,000 for each eligible investor.
Why we like the iDAD Callable Deposit plan.
The new 7-year Callable Deposit Plan issued by Goldman Sachs International Bank (GSIB) and promoted by iDAD (Investment Design and Distribution), is designed to pay investors 2 times the rise of the UK’s largest shares as measured by the FTSE 100, as long as GSIB fulfils its obligations and the plan runs to maturity. If GSIB did not fulfil its obligations eligible investors would benefit from government protection via the Financial Services Compensation Scheme for amounts of up to £85,000, so you may wish to limit exposure accordingly.
However, GSIB may “call” the Deposit Plan allowing the bank to terminate the Deposit Plan early, returning investors’ money on any quarter (after 24 months) paying 7% per annum to compensate investors. For example, if after 4 years GSIB decide to “call” the Deposit Plan, investors will receive 100% of their investment plus a 28% growth payment.
This option to “call” the deposit is obviously valuable to the bank, so the bank is willing to pay a 7% premium in order to terminate the deposit early which, on a risk versus return basis, compares favourably with bank deposit rates.
So, under what circumstances is the bank likely to “call” the deposit early?
If the UK market is performing strongly and GSIB believe it may have to pay more than 7% per annum, the deposit may be called. For example, if GSIB let the deposit run until year five, but believe it will have to pay more than five coupons (35%) GSIB will probably prefer to pay investors the coupon and return the money.
If interest rates fall and GSIB think it can raise money significantly more cheaply than it can via this deposit, then GSIB might decide it’s worth paying 7% (per annum) to get out of it. The control of the ‘call’ is down to GSID and detailed in the contract terms.
It might be simpler to answer the question: in what circumstance will it be very unlikely to terminate the deposit? This is quite simply, when the FTSE 100 is below its initial level or very slightly above i.e. – when the stock market is not performing positively in a material way.
So, does this deposit offer a reasonable chance of beating interest rates?
We like its chances. 2018 saw the largest companies listed on the London Stock Exchange as measured by the FTSE 100 falling to around 6,600 points from an all-time high in May 2018 of 7,877. As at the 31st May 2019 the FTSE 100 closed at 7,161. The median forward-looking price-to-earnings ratio is under 12, which suggests the index is fairly valued by historical measures. This suggests it is not a bad time to enter the market.
If you compare this deposit to the best buy deposit rates from major banks, which are around 2.2% per annum and around 1.8% for ISAs, then the FTSE 100 needs to rise by around 8% over the next seven years to ensure you beat current rates; in this case you would receive 16% at maturity. That is assuming the bank doesn’t “call” the deposit early returning your cash plus 7% per annum.
That’s the kind of cash back we like at Best Price.
Investors must be mindful of the risks; market risk, issuer risk and the FSCS Protection level.
Don’t forget the risks – https://www.bestpricefs.co.uk/structured-products/callable-deposit-plan/#risks
As always, the information provided within this communication must not be seen as advice. Advice is always specific to an investor’s personal needs. If you require advice, simply get in touch.
Best Price FS Team
Please follow and like us: