skip to main content
9th
Oct 2017
/

Income ISA offers up to 7.60% pa paid quarterly

Income ISA offers up to 7.60% pa paid quarterly

Inflation reached as high as 2.9% in August as reported by the Office for National Statistics (ONS). As a result, many individuals are looking for ways to receive more income to combat the effect of rising inflation. 

The current crop of savings rates do not offer the interest required to match inflation, let alone beat it. This means that, unfortunately, if you have savings in an instant access account you are losing money in real terms.

If you want to get more from your capital and you are prepared to take on a bit more risk then you could explore the opportunities that Income ISA plans offer.

At the time of writing, the FTSE 100 Defensive Income Plan from Investec provides individuals with the opportunity to receive up to 7.50% interest even if the stock market drops by 40%. 

The FTSE 100 Defensive Income Plan

Unlike current Fixed Rate cash ISAs, which offer up to 1.375% per year, the FTSE 100 Defensive Income Plan has the ability to potentially provide a 7.50% return on your capital for the entire eight year term. Although the plan is designed for eight years, it has the ability to mature early or ‘kick-out’ at the end of each year from year 2 onwards.

Conditional Capital Protection

The Defensive Income Plan differs from Fixed Rate Cash ISAs, as the plan is a capital at risk product. If you are uncertain about putting your capital at risk, then you should bear in mind that the plan comes with what is called ‘conditional capital protection’.

If the plan runs for the full eight years and the FTSE does not drop by 40% from its level at the start of the plan then the capital invested will be returned in full. However, it is important to note that if the FTSE does fall below 40% then the capital is reduced by 1% for every 1% fall of the index.

For example if the FTSE fell by 39% then the capital is not affected, but if the FTSE fell by 41% then the capital would be reduced by 41%.

FTSE 100 Index

The FTSE 100 Index (‘the index’ or ‘the FTSE’) is widely recognised as the proxy benchmark for most investors. Since the historical volatility of this stock market is familiar to many investors, they are in a better position to consider the pros and cons of the plan within the context of the underlying investment.

Although the income ISA is not an investment directly with the index, the plan is linked closely with the performance of the FTSE 100 Index. The plan is dependent on the FTSE, as both the income and the treatment of the initial capital will depend on whether the FTSE drops below a certain percentage.

Interest that may beat inflation

The Defensive Income Plan has the ability to provide three times the amount of interest that a Fixed Rate Cash ISA can. However, this is determined by how well the FTSE throughout the term of the plan.

The level of the FTSE is recorded at the start of the plan. This is the known as the starting value and it is the figure used to calculate whether the plan provides an income payment or not. It should be noted that the plan will be calculated by the level of the FTSE at the beginning of the plan not from the date that the capital is invested.

After every quarter, if the index is above 80% of the starting value then a 1.90% income payment is made. However, if the FTSE does fall below 80% of its starting value then no income payment is made.

For those who believe that the FTSE may fall more than 20% the plan may still be of some interest, as there is another option available. The FTSE 100 Defensive Income Plan’s second option potentially provides 5.75% per year provided that the FTSE does not fall more than 40%.

Eight year fixed term

The majority of Fixed Rate Cash ISAs available to the general public typically offer fixed terms from 1 to 5 years. To fully benefit from the interest rates, the capital in a Fixed Rate CASH ISA cannot be withdrawn during the fixed term.

Although the Defensive Income Plan has a fixed term of eight years, it is important to note that it is possible to withdraw the initial capital from the plan early. However, the plan was designed to run for the full eight years and if the capital is withdrawn before the term has concluded then the returned capital may be less than expected.

What makes the Defensive Income Plan stand out from the majority of other plans is its ability to ‘kick out’ or mature early. This means that the initially invested capital can be fully returned before the eight year term has concluded.

For the Defensive Income Plan to ‘kick out’, the FTSE has to show an annual increase of 5% or more from the second year onwards. Therefore, should the FTSE increase by this amount in the future, investors will receive a final income payment along with a full return of their initial capital.

Capital at risk

It is important to remember before considering the Defensive Income Plan that it is a capital at risk product and only those who are prepared to potentially lose some or all of their capital should invest in this plan.

The principle of risk versus reward means that the search for potentially higher returns leads us to consider putting our capital at risk. A good benchmark for assessing the merits of an investment is to compare what returns can be secured from a fixed rate deposit over a similar time frame (fixed income plus full capital protection), with the potential returns from the capital at risk product.

Next Steps

You can find more information in relation to the Defensive Income Plan here.

Important Risk Information:

This website contains information only and does not constitute advice or a personal recommendation in any way whatsoever. The value of investments and income from them can fall as well as rise and you may not get back the full amount invested. The tax efficiency of ISAs is based on current tax law and there is no guarantee that tax rules will stay the same in the future.

Different types of investment carry different levels of risk and may not be suitable for all investors. Please ensure that you read the Important Risk Information for further details. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment and should read the product literature. If you are in any doubt as to the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.

High Income ISAs

High income ISA ideas:

ISAs Products

Cash ISAs

Fixed Rate & Instant Access ISAs:

Cash ISAs: 

Stocks & Shares ISAs

Types of Stocks and Shares ISA include: 

Stocks and Shares ISAs

Latest News

ISA Savings Focus - A Potential 6% pa From Your Savings

14th August 2018

Although inflation over the last couple of months has fallen slightly to 2.50%, this is still much higher than you can get from many traditional savings products, such as fixed rate bonds. And if you take a look at a range of Cash ISA rates on offer, the options are even worse as these savings rates are generally much lower than their non-ISA equivalents.

Newsletter Signup

Sign up to our Newsletter to get exclusive news and offers direct to your inbox.

About us

ISA.co.uk is a trading style of Fair Investment Company.

We've been comparing and recommending ISAs for many years so you can trust you're in good hands.

About us

4.89 Average

36 Reviews

Jen

I found the way the different options are presented very clear - much more useful than some other comparison sites. I sent it to my daughter as well.

Paul

Very informative, find myself a good ISA account with best return in terms of interest.

Anonymous

Easy to navigate, all required information was to hand. Professional looking site!

Jessica Esa

ISA.co.uk has a really attractive and simplistic design. I've found it easier to use than other similar comparison sites. The products are simply described, it's informative and the pros and cons are really clear. Great website.

Sue

Easy to use website and up to date. Saved the link on my tablet.

Rob Holden

The website was very useful and informative.

Andrew Johnson

ISA can be confusing at first and this site includes a useful and helpful introduction into the world of ISAs

Crowd2Fund

Excellent website - clear and helpful information about different products - and a trustworthy partner.

Anonymous

Quick and professional service provided

Anonymous

Very insightful and easy to navigate.. would recommend to anyone interested

Helen Belcher

Clear concise information that was easy to understand!

Sue

Easy to use website and up to date. Saved the link on my tablet.

Adam

simple, informative and clear - found what I was looking for straight away. Thank you.

Steve

Really simple to use and all the information was clear with lots of products available. The interest calculator was really handy too. Have bookmarked and will definitely use again.

Marion

Very helpful site for my investment isa

Hannah Gordon

This was a really user-friendly site, and was very helpful when it came to comparing accounts and choosing my 2016 ISA.

Sue

Easy to use website and up to date. Saved the link on my tablet.

Anonymous

If you wish to invest in an ISA this site has it all. A super comprehensive range of simply explained products from all the major companies.

Cristina Iacob

Very knowledgeble company with an extensive range of services, a great website with loads of useful information.

Jessica Morley

Really informative and easy to use site. Information is laid out very clearly and comparisons have all the plus & minuses I'm interested in, so makes me feel like I am making an informed decision. There was also a lot of additional information which would be incredibly helpful to someone completely new to ISAs who wanted to read up on the basics.

Sam H

excellent website, helped me to understand how i can get started with ISA's and helped me to narrow down great deals!