Thu, 22/05/2014 - 12:01
Returns from Investec’s structured deposits with a kick-out feature have outperformed savings bond rates since 2010, with average returns of 6.3 per cent per annum, according to Investec Structured Products (ISP).
This is the first insight into aggregate data for structured deposits with a kick-out feature in the UK, which excludes the returns of other deposit profiles and structured investments which have a higher risk profile and are not comparable to cash accounts.
Investec Structured Products showed its investors made substantial returns from its 42 kick-out deposit plans that have matured early since 2010, after a period of either one, two or three years.
Investors with maturities after one year received 6.9 per cent on average, rising to 12.12 per cent over two years and 19.05 per cent over three years. The plans had a maximum term of five years with the potential for early maturity based upon the performance of the FTSE100 Index. The returns come at a time when over 63 per cent of investors think three per cent is a reasonable return for cash deposits, showing investors could be missing out by not choosing a product that offers significant upside with capital protection.
Investec’s kick-out deposit returns were 2.35 per cent higher than the average five-year fixed-rate deposit available in the UK between March 2009 and March 2014, although investors’ funds were locked away for less than half this period, at 1.8 years on average across the 42 plans.
Kick-out plans (also called Autocallables) are the most popular type of structured products in the UK. Kick-out plans usually have an investment term of five or six years but they can mature or ‘kick-out’ before their maturity date, as long as the underlying index meets its pre-defined criteria at specified points within the plans duration. If this occurs the plan will automatically mature and kick-out paying a pre-defined return for each year the plan has been in force, if not it will continue to maturity.
Plans with this feature are well received by investors with research showing that 84 per cent of investors are comfortable with or would be happy with an investment that matures early if it has met its target investment objective, rising to 91 per cent for those under 35-years-old.
Gary Dale, head of intermediary sales at Investec Structured Products, says: “Low interest rates would appear to be with us now for the foreseeable future so it is perhaps time for investors and advisers to sit up and seriously look at the benefits structured deposits have as real alternatives to cash savings rates and fixed rate bonds. Liquidity is clearly important and clients should always retain emergency funds however why would you lock your capital into a savings account paying a derisory rate of interest, when a structured deposit offers a similar level of protection with a proven record of substantially higher returns?”
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