Abbey’s not so Super ISA?
I’ve just found this post by Chris Gilchrist of http://www.everyinvestor.co.uk March 13 2008 and I think it raises very serious points to consider when looking at the Abbey super ISA promising 10 per cent. There are a lot of people searching for this product online and probably in the high streets too but read on below to see what Chris thinks…I think he’s got a good few points;
Abbey continues to launch poor-value investment products with eye-catching gimmicks. This time, it’s the offer of a 10% interest rate on your ISA, but as usual the reality falls way short of the promise. Whatever the products lack, the marketing guys at Abbey Abbey do have chutzpah. Their latest investment plan is called the Abbey Super ISA. I don’t think so.
Chris continues; What this plan offers is 10% on the cash you invest in a mini-cash ISA. But you get that rate for just 13 months.
I guess the problem here is that after the initial 13 months you have the very irritating hassle of moving your money again…
You only get this interest rate if you put at least the same amount as you put into the high-rate mini-cash ISA into Abbey’s Guaranteed Growth Plan (GGP). The GGP ties your money up for three-and-a-half or six years.There’s a no-loss guarantee, and a minimum return of 6% over 3.5 years and of 18% over 6 years. If the FTSE 100 Index rises enough that 50% of the rise is greater than 6% over 3.5 years or 18% over six years, then you get a higher payout.
That last sentence should have you scratching your head. What are the chances of the FTSE 100 Index rising from its current 5,800 to over 6,150 in 3.5 years, or to over 6,840 in six years, the levels required for you to get a higher payout? Don’t have a clue? Join the club.
To be fair to Abbey they do say all this on the web site; Abbey.com I do understand what Chris is saying here, bascially the whole FTSE Index thing is way beyond me and most likely 99 per cent of most people. It’s just too hard to understand all the details and all the variables involved with actually getting the rate advertised.
Chris continues; Will it pay off? Let’s just ask how high the FTSE Index would have to rise over 3.5 years for you to get a reasonable return of 6% a year at encashment.Earning a steady 6% a year would turn an initial investment of £1,000 into £1,233 for a 23.3% gain. So the FTSE 100 Index would have to rise by double that or 46.6% (you only get half the rise) to a level of 8,500.
So here’s a question: if Abbey said: would you like to invest in a plan that will give you a reasonable return of 6% a year if the FTSE Index rises to 8,500 in 3.5 years’ time, but otherwise will give you a worse return than you can get on a deposit account, what would your answer be? I hope to goodness it would be a loud NO.
In sum, Abbey’s Guaranteed Growth Plan is a lousy product that’s almost sure to give investors a poor return on their money. You’ll probably do better with Abbey’s new Direct ISA paying a variable interest rate of 6.25%.
So as an investor I’d personally be looking for a product that’s far less complicated and not based on how well the FTSE 100 Index performs. I’d rather go for an ISA ISA in the first place and tying up additional cash for 3 to 6 years seems like a pain in the neck to me. Unless, of course, you have piles of cash lying sround in various savings accounts or current accounts