You may regard capital volatility, the ups and downs in the value of an investment, as not being suitable for you regardless of the medium to longer term investment outcome. In this situation the usual option is to retain cash in a deposit account or National Savings and accept a generally unattractive and disappointing interest rate together with below inflation returns. We can however consider and recommend a deposit based investment which provides the opportunity to achieve returns in excess of a cash deposit account over a set period of time by linking to one or more investment index.
The benefit of this type of structured deposit account is the opportunity to outperform cash and as the investment is a deposit account the plan also benefits from Depositor Protection (up to £85,000 per account). These plans are considered for clients with a relatively low attitude to risk and who are unwilling to risk their initial deposit. For example, you may get a return of 15% over three years if the final index level is just one point or more higher than the initial index level. If the final index is the same or lower, initial capital is returned on maturity. You should remember the capital sum would have been impacted by the effects of inflation over the term of the plan.
There are quite a number of companies who offer term based investment plans linked to an index but it is important to distinguish between those which are investment based and those which are deposit based, as described above. The key to deposit based plans is the inclusion of FSCS depositor protection, up to £85,000 whereas investment based plans do not provide any FSCS protection and therefore have risk to the initial capital invested if one or more of the parties involved fails. In our opinion this is an unnecessary risk for a cautious investor.
