Financial Advisors Warn Against Linked Investment & Savings Plans

We have already listed a number of ways that savers can use to beat the low savings rates that are currently offered by most UK banks. Another savings option that is now widely offered by British banks is linking savings with investment plans, which allows for high rates. Banks tend to reward savers, who purchase investment products with a higher savings rate. One of the leading banks that provides this type of account is the Santander Group. Its Super Range product, which is available through Abbey, Bradford & Bingley, Alliance & Leicester, offers savers a combination of a bond, an Isa (individual savings account), and a savings plan. Savers are guaranteed to have a higher savings rate (of up to 6.5% AER (annual equivalent rate)) provided they make an investment of an equal or higher value into one of the bank’s investment products, including pensions. A similar product is available through HSBC. The World Selection product, offering high savings rates (of up to 5% gross), was first launched by the bank in May 2009 and lasted through August. HSBC promises to re-launch it this October. Evidently, the savings rates offered via special deposit-investment products by HSBC and Santander are more competitive than standard savings rates offered by UK banks (for instance, the leading savings market offer by the Chelsea Building Society pays only 3.8% AER). Representative of a British financial research company Defaqto, Mr. David Black, says that he expects other UK banks to soon launch products similar to HSBC’s World Selection and Santander’s Super Range as they not only contribute to better competitiveness in the savings market, but also benefit savers (through an opportunity to get higher rates) and banks (through an opportunity to cross-sell other products) themselves. The downside of the above-mentioned products, according to UK financial advisors, is their pressure on savers. Brooks Macdonald Financial Consulting and Baigrie Davies experts say that these products most of the time attract savers due to the high savings rates, while diminishing the overall return on savers’ investments.

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