You may have seen that attractive structured deposit Kick Out rates have increased by 25% to 5% for every year held with Investec’s FTSE 100 Kick-Out Deposit Plan 76 in the most recent issue. The term of the product is 6 years.
Key Risk – If the FTSE 100 finishes equal to or lower than its starting level you will only get back the initial capital deposited. There is a potential for maturity at the end of years 3, 4, 5 and 6 with a payment equal to 5% per annum (not compounded) if the FTSE 100 is above the starting level.
This type of product is popular for investors who are lower risk in nature, although looking to gain inflation beating returns.
Often investors who are looking to preserve their capital but want to benefit from the upside in the main UK index (FTSE100) will purchase such a product solution.
Charities and medium term corporate money often looks at such a solution, or investors who are re-balancing their investment holdings where they wish to ‘take some risk off the table’. (You must note that this blog does not constitute ‘advice’ – financial advice is provided only when a full understanding of a ‘Know your customer profile’ is gathered and is always specific to an individual’s needs).
Past performance is not a guide to future performance.
A reminder of the main points and protection of Structured Deposits
A structured product is essentially a market linked investment where the return is determined by the performance of a particular security, index or other exchange traded asset/basket. While this can lead to complexity, the return profiles with the majority of structured products are simply based on the performance of indices such as the FTSE 100, with the returns delivered at a defined date (the maturity date).
Structured products can generally be split into structured deposits and structured investments. Structured deposits are designed as an alternative to cash savings, with investors asked to make a simple decision between a known rate of interest from say a fixed rate savings account or a potentially higher rate of ‘conditional’ interest from a structured deposit. The ‘condition’ is that usually the underlying index needs to be higher at maturity. Structured deposits are covered by the Financial Services Compensation Scheme up to £85,000 and do not put a client’s initial deposit at risk.
They offer pre-defined returns, both in terms of downside protection and the potential for higher rates of interest providing a degree of predictability in today’s low interest rate environment, which looks set to continue certainly in the medium term, helps investors maximise the returns from their cash-based savings. A simple example of a capital protected structured deposit is outlined below.
An investor places £10,000 in a structured deposit. The issuer then invests a proportion of the £10,000 in a cash asset that will generate a return of £10,000 at the end of the product term. The remainder of the deposit is used by the issuer to buy upside performance in the underlying asset/index. At the end of the product term investors receive their initial deposit back regardless of whether the linked asset has met performance targets, with an additional pre-defined interest payment in the event that it has met pre-defined targets. The downside could deliver no return should the index be lower than the starting point at the 3, 4, 5 or 6-year maturity point.
Low interest rates would appear to be with us now for the foreseeable future so it’s not surprising that investors and advisers are taking a serious look at the benefits of structured deposits as real alternatives to cash savings rates and fixed rate bonds.
Our ‘best price’ transaction fee of 0.3% (minimum fee of £50) enables the consumer of Structured Products – be it a Structured Investment or Structured Deposit to purchase the contract-based investment solution at exceptional value.
We urge consumers to ‘shop around’ to compare transaction costs when purchasing on a non-advised basis so more of the returns stay in the pocket of the consumer. We know that our transaction service and advice service offer excellent ‘Best price’ value for money. If you have any questions, feel free to call us on 01639 860111 or email at firstname.lastname@example.org
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