Past performance data from Investec Structured Products shows returns from their structured deposits with a kick-out feature have outperformed savings bond rates since 2010, with average returns of 6.3% per annum, according to Investec Structured Products (ISP), the leading structured products specialist in the UK[1].
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[2]. 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% on average, rising to 12.12% over two years and 19.05% over three years. The plans had a maximum term of 5 years with the potential for early maturity based upon the performance of the FTSE100 Index. The returns come at a time when over 63% of investors think 3% is a reasonable return for cash deposits[3], 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% higher than the average 5-year fixed-rate deposit available in the UK between March 2009 and March 2014[4], 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 5 or 6 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% 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 an impressive 91% for those under 35-years-old.
Gary Dale, Head of Intermediary Sales at Investec Structured Products, said: “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?”
All of Investec’s structured deposits are covered by the Financial Services Compensation Scheme up to £85,000, rising to £170,000 if it is a joint account held by two eligible depositors.
1 The 42 deposit plans had average returns of 6.3% per annum. Average period of investment was 1.8 years.
2 Structured Deposits are underpinned by a cash deposit, which are equity-linked but capital protected and covered by the Financial Services Compensation Scheme (FSCS). They offer depositors the choice of swapping a known or fixed rate of interest from their cash savings in return for a fixed rate of return, which is usually higher than savings rates linked to the performance of an index over a set period of time. In contrast, Structured Investments come in a variety of different product shapes with many different risk/reward profiles including auto-call structures, growth and income pay-offs. Pre-defined returns are offered alongside an element of capital protection, but these are not normally covered by the FSCS in the event of counterparty default.
3 Attitudes to Investing and Structured Products, GfK Financial, February 2014. This was a survey of 501 individuals with £20,000+ in assets across investments and/or savings.