26 February 2010

Good afternoon

Following the end of tax year e-mail that we sent a week or so ago, we are now writing as promised to highlight a couple of opportunities and issues that may be relevant to you in relation to your cash holdings. 

We always discuss with clients the importance of retaining healthy cash balances to fundamentally act as an “emergency fund” within your overall financial strategy.  As we will have alluded to in earlier communications and direct discussions, no-one knows what the future holds at present.  Once again high profile differences of opinions are illustrated by the leading economists disputing how quickly the UK should start beginning to try and reduce the Country’s debt mountain.

Fundamentally, we would regard money as being a means to an end.  If at all possible everyone should be endeavouring to minimise the impact the global economic difficulties have on their lives.  With this in mind, although there clearly are opportunities to invest in risk assets which it is right for many of our clients to take up, we do continue to advocate the merits of retaining healthy cash balances to help you transition through what realistically could be “choppy waters” over the next few years.

It is with this in mind that we are writing today to highlight particular opportunities for your deposit holdings; to potentially benefit from higher interest rates than they may be earning at present.  We stress that all of the accounts mentioned in this communication are protected under the UK Depositor Protection Scheme (DPS).  As you are probably aware, the DPS provides protection on balances per individual, per institution, of up to £50,000.  We appreciate that with the consolidation of a number of banks the opportunities for separate protection are limited.  If your cash balances exceed the £50,000 protection levels we would not suggest that you exceeded the individual protection levels with any of the institutions referred to below.

As ever, a first step with ‘spare’ cash would be to reduce debt. If you have existing mortgage debt or loans, you should consider reducing or redeeming this initially from cash. We will now proceed to summarise several deposit/cash style opportunities for your consideration.  Rather than include numerous attachments to this e-mail we would highlight and stress the importance of following the various product and literature links for more detailed consideration prior to actioning any of the accounts.

Cash ISA Transfers

Many of our clients have built up significant balances in cash ISAs over recent years.  From a financial strategy perspective we would regard cash ISAs as being part of the “emergency fund” providing healthy foundations to your broader financial situation.  One of the main reasons for this communication is that repeatedly during our client review meetings it is evident that there is increasing frustration about the paltry level of interest rates being earned on cash ISAs. 

The cash ISA rules do permit a transfer to another cash ISA and also to a stocks & shares ISA.  The reality often is that only a small percentage of cash ISAs accept transfers in.  A movement to a stocks & shares ISA will be appropriate to some, but we would highlight that the transaction cannot be reversed; i.e. you cannot move from a stocks & shares ISA into a cash ISA.  In this communication we are only referring to a cash ISA transfer to another cash ISA.

Please find set out below details of a limited-term cash ISA, the Royal Deposit ISA 2, which does accept cash ISA transfers that may be of interest to you.

The main terms are laid out below: -

• 4% tax free interest (paid as income in early May 2011/12/13).
• 3 year fixed term maturing on 7th May 2013.
• Cash ISA transfer deadline 1st April 2010.
• Marketed by Legal & General and depositor protection provided by Ulster Bank Ltd.*
• On any cash ISA transactions ELCC will be paid a one off commission payment of 1.25% (ie. 1.25% of for example £7,200 = £90).

*Ulster Bank Ltd is a wholly owned subsidiary of Royal Bank of Scotland, but under a separate banking licence. Thus, any money held with RBS is not aggregated with this for DP purposes.

In view of the fact that the Royal Deposit ISA 2 is fixed for 3 years, it is fundamentally important that you do maintain sufficient accessible deposits for your emergency fund and other requirements.  This may be within a normal accessible deposit account or within more accessible cash ISAs.

Literature for this deposit ISA can be obtained by clicking on each of the links below.  Please ensure that you read through the literature thoroughly before proceeding with this investment. 

RBS Royal Deposit ISA 2 Brochure
RBS Royal Deposit ISA 2 Terms & Conditions
RBS Royal Deposit ISA 2 Application form 2009/10

We would recommend that you refer to sections 8a and 8b in the product information, which confirms the terms in the event of early withdrawal from this product. We would stress that it is designed to be held for the full term. Potentially, there is loss of interest and even capital if part or all of the account is closed before the end of the term. This needs to be considered and if you have any questions about it, please contact us before submitting an application.

A further point to highlight is the potential level of interest rates over the next 3 years.  There is the possibility and even, some say, the likelihood that UK base rates may rise significantly.  In more general terms and with this in mind, we have to date, not been inclined to suggest a fix into interest rates beyond 2 years.  Having considered the overall merits of the Royal Deposit ISA 2 however, we have concluded that it is worth serious consideration in the context of this reservation.

Our research would suggest that the Royal Deposit ISA 2 account is competitive. Although constantly changing, looking today, there is a 4-Year Fixed Term ISA Transfer account with Halifax that pays a rate of 4.25% p.a. but at maturity. There is a 3-Year Fixed Term ISA account with Nationwide paying 4% p.a. for those aged over-50.

Clearly this is a general communication and we hope you find it of interest.  We do stress that if you do have any doubts as to the suitability of the Royal Deposit ISA 2, please do not hesitate to contact us.  If you are happy to proceed with a transfer of some or all of your cash ISA balances please print off the attached application form and return it to us before the 1st April deadline. 

We recommend that if you have any doubts as to the suitability of the investment that you should seek a personal recommendation from ELCC.  We would highlight that you are not certain to make a profit; you may lose money or make a loss.

Northern Rock

In Autumn 2007, we all saw account holders queuing outside the Northern Rock to withdraw their deposits.  Ironically, a year later, savers were queuing to deposit their savings there!

In the intervening period, Northern Rock had effectively been nationalised and savers benefitted from a 100% guarantee on their deposit balances, with the guarantee provided by the UK Government rather than the £50,000 depositor protection; as with other banking institutions.

We know that a number of our clients with larger cash balances did take advantage of this additional security provided for Northern Rock account holders. 

In relation to the Northern Rock 100% savings guarantee, the Treasury has today announced its removal from 24th May 2010.

Deposit Accounts To Be Aware Of

As you may be aware, we have a data feed into our website from “Moneyfacts Ltd” which provides updates and comparisons of various deposit accounts which you may find a useful reference point in the future.  To find the link, follow the “savings & mortgages” option on the navigation of our website www.elcc-llp.com or click on the following link http://www.elcc-llp.com/savings.aspx.

Deposit accounts and interest rates vary all the time.  That said, with this communication stressing the importance of cash management, we thought it might be useful to highlight two deposit accounts that we have been mentioning to clients when we see them on an individual basis.  Firstly, the “High 5 Account” offered by Investec Bank.  On an ongoing daily basis, this account averages the five best interest rates available on various deposit accounts, including notice accounts and accounts with bonuses.  At the time of writing, the present growth rate from this account is 3.24%.  The “High 5 Account” does have a minimum balance requirement of £25,000 and monies are available on 90 days notice. 

These criteria mean that this account is not right for everyone, but for those with sufficient balances, the principle of the “High 5 Account” will mean that you will be safe in the knowledge that your rate on an ongoing basis remains extremely competitive in the market place.   Investec Bank is a South African Bank, but the “High 5 Account” does benefit from the UK Depositor Protection Scheme.  The independent credit rating that Investec presently hold is BBB+.  As mentioned earlier in this letter, we would not advocate exceeding a balance of £50,000 per investor.

To discover all the details of the Investec “High 5 Account” together with application forms, please click on the following link http://www.investechigh5.co.uk/ (please note ELCC are not responsible for the content of the information provided on this website).  At the present time Investec are not paying any remuneration to ELCC for setting up an account.  However, they are reviewing this situation.  If you are opening an Investec Account please could you note on the application form that you are a client of ELCC LLP.

The second account we are bringing to your attention is the Scottish Widows Bank “Direct Transfer Account”. This account has no minimum balance and your funds are available on an instant access basis.  The present interest rate of this account is 2.01% gross.  For those holding deposit balances with a potential need for short term access, what we feel makes this account relatively attractive at present is that, after deposits have been held for 6 months, you benefit from an additional 1% interest rate, i.e. a combined 3.01% on an instant access basis.

Full details of the Scottish Widows Direct Transfer Account can be obtained by clicking on each of the links below.  Please ensure that you read through the literature thoroughly before proceeding with this investment.  For account balances within this Scottish Widows Bank Account, ELCC will be remunerated 0.2% (ie. 0.2% of for example £7,200 = £14.40).

Scottish Widows Direct Transfer Account Brochure

Scottish Widows are now part of the Lloyds Bank Group and again, protected under the UK Depositor Protection Scheme.

In conclusion we hope you find the information in this e-mail of interest.  If you are planning to proceed with the Royal Deposit Cash ISA opportunity, please return the completed application forms to us prior to the 1st April deadline.  In addition, we would again stress that if you do have any doubts as to the appropriateness of either the Royal Deposit Cash ISA or the other deposit accounts mentioned, please do not hesitate to contact us.

If you would like to receive printed copies of any of the literature mentioned in this communication, please can you contact us with your request.

Yours sincerely

Andy Little, Dip PFS
Partner

ELCC Terms of Business & Keyfacts