Deposit Plan – Capital Protected with FSCS protection up to £85,000.
Why we like the Goldman Sach’s Callable Deposit plan.
The new 6-year Callable Deposit Plan issued by Goldman Sachs International Bank (GSIB) and promoted by IDAD (Investment Design and Distribution), is designed to pay investors three times the rise of the UK’s largest shares as measured by the FTSE 100, with no chance of losing money unless the bank goes bankrupt. In this case investors would benefit from government protection via the financial services compensation scheme for amounts of up to £85,000, so always 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 12 months) so long it pays 8% 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 32% growth payment. This headline rate of ‘compensation’ is currently market leading, with capital protection.
This option to “call” the deposit is obviously valuable to the bank, which is willing to pay quite a lot more than standard interest rates to choose to terminate the deposit early.
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 8% 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 (40%), 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 8% (per annum) to get out of it.
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 FTSE100 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 FTSE100 falling to around 6,800 points from an all time high in May of 7,864. 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 a the best buy deposit rates from major banks, which are around 2.2% per annum and around 1.8% for ISAs, then you only need the FTSE 100 to rise by around 5% over the next six years to ensure you beat current rates; in this case you would receive 15% at maturity. That is assuming the bank doesn’t “call” the deposit early returning your cash plus 8% per annum. That’s the kind of cash back we like at Best Price.
We always recommend our investment clients access a wide range of assets, in line with the overall risk objectives and risk capacity to suffer reductions in asset values when investment markets fall.
We are sure there will be a large amount of interest in this new plan so, if you think you would be interested in investing, take action promptly so you can be sure of the plan not being closed early due to investment volume.
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