This is a 6 year investment plan that links your returns to the FTSE 100 Index while protecting your original investment. It’s available as a cash individual savings account (ISA) and as a standalone plan in which case any returns are taxed as interest, i.e. you’ll pay income tax if a taxpayer.
The Protected Capital Account Tracked Growth 3 plan is run by Credit Suisse, which pays Yorkshire Building Society a sales commission of 4%, i.e. £400 per £10,000 invested – it’s easy to see why banks and building societies like selling these types of plan – but is this any good?
On the plus side the plan offers a 20% minimum return, regardless of what happens to the FTSE 100 over the plan term. But 20% over 6 years is equivalent to 3.1% gross a year, ok but short of the 5% you can currently earn on a 5 year fixed rate savings account (4.35% for cash ISAs).
Any additional return depends upon FTSE 100 performance and herein lays the potential sting in the tail. The change in the FTSE 100 Index is taken over the 12 half year periods that make up the 6 year term. Over each half year period the maximum gain or loss is limited to +6% and -6%. So if the FTSE 100 rises by at least 6% over each of the 12 half year periods during the plan’s term you’ll receive the maximum possible 72% return, equal to 9.46% gross a year. This is highly unlikely.
In practice you’ll probably be lucky to enjoy the maximum 6% return just half the time, giving you a total return of 36%, equivalent to 5.27% gross a year – little more than cash. Why take the risk?
In my opinion this plan doesn’t cut the mustard as it fails to offer enough to tempt either committed savers or investors. If you’re nervous and/or sceptical about the stockmarket then why would you want to tie up your money for 6 years when there’s a strong chance you’ll struggle to beat cash returns anyway? And if you are positive about stockmarkets then buy a tracker and you’ll enjoy the benefit of dividends (likely worth 3-4% net of basic rate tax each year) along with the potential for higher overall returns. Plus tracker fund gains outside an ISA will be subject to capital gains tax, currently more favourable than the income tax treatment of this plan.
The Yorkshire Building Society will no doubt rely on the headline 72% potential return and customers failing to understand what they’re buying to sell this plan (and pocket their commission). Business as usual in financial services...
The plan is open for business until 13 May and will commence from 7 June 2010, maturing on 7 June 2016. Your original investment is covered by the Financial Services Compensation Scheme (FSCS) up to £50,000 per person.
The way the Yorkshire Building Society Protected Capital Account plan links returns to the FTSE 100 makes it especially unattractive. This plan is best avoided by savers and investors alike.