Fixed Income Bond, as safe as State Savings Cert?

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ricta

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Broker Solutions are currently offering a Fixed Income Bond with 100% capital guarantee, 3% p.a. for 3 years, gross, subject to income tax, 20% in my case.
I have funds in 5 year State Savings Certs giving 1% p.a. nett.
It looks to be a no-brainer to cash in the Certs now, which have various maturing dates over the next 3 years, and move the funds to the Fixed Income Bond.
Is there any reason to be wary of this move?
 
It might only be available via Financila advisors/Brokers.
I have attached the info I have.
 

Attachments

  • Key Features Broker Solutions 3 Year 100% Capital Secure Income Bond 2022.pdf
    2.1 MB · Views: 209
I certainly wouldn't buy it based on that flyer alone.
I would be looking for a more detailed prospectus/terms and conditions booklet.
And these types of investment/tracker bonds tend to have a lot of critics around here.
www.ccpc.ie

Types of Investment - CCPC Consumers

The Competition and Consumer Protection Commission is an independent statutory body that enforces competition and consumer protection law in Ireland
www.ccpc.ie www.ccpc.ie
Income tax on returns means that the net return for a high rate taxpayer could be c. 50% of the headline rate.
Aren't most or all state savings tax free?

A state capital guarantee is almost certainly stronger than a private one.
 
It seems there is also a 0.3% admin fee, so for a 20% taxpayer like me I calculate a nett return of 2.16% p.a.
So just over twice the return on State Savings.
 
There is no capital guarantee. Like any fixed private income product the issuer can default.

By contrast I see basically no circumstances where capital invested in state savings will not be honoured by the Irish government.

So there is a higher return but higher risk.
 
If Morgan Stanley were to default it looks like I would be dependong on the German Deposit Guarantee Scheme to get funds back. That would be up to €100k if this is considered a deposit, or €20k if considered investment business. possible further risk.
 
ricta said:
It seems there is also a 0.3% admin fee, so for a 20% taxpayer like me I calculate a nett return of 2.16% p.a.
So just over twice the return on State Savings.
Click to expand...
How do you arrive at 2.16%?
And could the returns be subject to USC and PRSI?
Could the 0.3% be a charge on the total fund?
Impossible to answer some questions without a detailed prospectus.
 
You are right, I do need more details.
Maybe my maths are screwy?
50000 invested, 3% annual return = 1500, minus 150 (0.3% admin fee,) = 1350, minus 270 (20% tax) = 1080 annual return which is 2.16% of 50k
Don't know usc or prsi would also apply
 
You need to avoid all these products or pay a professional to analyse them for you. I couldn't find your particular one, but what about this one?

1666816497457.png

So you get a return whatever happens? Where are the caveats?
 
Oh, here they are.

1666816754604.png


And here is Colm Fagan's analysis of another bond they offered

Diary of a Private Investor - structured product too good to be true

Too good to be true Colm Fagan Diary of a Private Investor Update 17 10 September 2019 A conversation with my friend Brian Woods almost four weeks ago started it all. “Colm, I found an investment you might like. It’s called Accelerator Bond 4. Google it and see...
www.askaboutmoney.com
 
It takes two actuaries with decades of experience to work out exactly how these products work. If a product is that difficult to understand, stay well clear of it.

I don't recommend any of these types of products to my clients because they are so complex.

And you find that the guarantee is limited. If the value falls by a certain amount, all guarantees are off...which is when you need it most.


Steven
www.bluewaterfp.ie
 
ricta said:
If Morgan Stanley were to default it looks like I would be dependong on the German Deposit Guarantee Scheme to get funds back. That would be up to €100k if this is considered a deposit, or €20k if considered investment business. possible further risk.
Click to expand...
You are potentially putting all your capital at risk for approx 1 percentage point better return.

I don't know what your risk tolerance is but you don't have a super-high income if your tax rate is 20%. If I had big wealth and a modest income I would be risk averse.
 
A client of mine was offered 1.9% bond after two years, capital not guaranteed, investing in Spanish and Italian debt. Risk rating 1. It was from a Spanish bank that he uses over there. They shouldn't even be selling it to him!
 
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