Beware Of Abbey's 8.1% ISA Offer - Small Print Hides Catches
March 2007
True to their usual form the banks often find it hard to offer a great deal without throwing in a nasty catch or two. Worryingly the marketing of such offers appears to offer the consumer the better deal but in reality it’s the banks who do the best business.
A latest example of this is an ISA offer from the Abbey.
Abbey’s Super ISA Offer Pays 8.1%
ISAs are tax free savings and investment accounts and with UK interest rates of 5.25% it pays what looks to be an outstanding 8.1% a year.
But the nasty catch is that you also have to invest an equal amount in the bank’s Guaranteed Stockmarket Growth Plan. Another name for these kinds of investment products are Guaranteed Equity Bonds (GEBs) and they’re fantastic money earners for the banks.
GEBs on the surface look simple, it’s impossible to lose money investing in them even if the Stockmarket moves lower and they also offer a certain percentage of growth if the market moves higher. But, and this is the real key they don’t receive any of the dividend income paid out by the shares and with dividend income ranging from 2% to 4% per annum that’s one hell of a chunk of money to leave on the table.
In fact, it is critical to note that for the majority of Stockmarket investors dividend income (and the reinvesting of it back into the market) is the key to successful long term investing.
You can read more about why we dislike GEBs on these two links.
Some other small print catches on the Abbey ISA are -
- On May 1st 2008 the interest rate drops to the level paid on Abbey's Direct ISA account which now is 5.5% on sums up to £9,000 and 5.75% on sums over £9,000
- And another one to good measure - The rate above of 5.5% already includes a 0.5% bonus which is also removed on the 1st May
Conclusion
To us it looks like the Abbey is offering a loss leader on the cash ISA but more than making the money back and more on the Guaranteed Equity Bond. Sort of like they offer you £5 with the left hand but take £10 away with the right.
Our advice is simple, when in doubt go for the simplest financial product preferably with little or no catches. And right now one of the best cash ISAs is the National Savings & Investments paying 5.8% on amounts above £1,000.
See Also
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