Risk boosts deposit return

The low interest-rate environment has thrown many investors into a tailspin. Traditional deposit-based savings accounts are not delivering the return they once did and other options appear too risky for conservative investors.

Equity Bank and EBS have recently designed products for those comfortable with deposits but who are willing to take on a bit more risk for higher potential returns.

Equity Bank has teamed up with Scottish Provident Ireland to create "Save and Invest", which combines an instant access deposit account currently offering a rate of 5.25 per cent with a conservative investment portfolio.

The save element is a demand deposit account operated by Equity Bank. In the first year investors are guaranteed a rate 2 per cent above the European Central Bank (ECB) rate, now running at 3.25 per cent, on the amount placed in the account.

In year two the rate will be one percentage point above the ECB. There are no account maintenance charges or fees for this side of the product.

The invest side of the equation is an investment bond linked to a Cautious Managed Fund. Scottish Provident operates this investment and places half the funds in equities and the other portion in bonds and cash.

A loyalty bonus of 2.5 per cent is paid at the end of year three in the form of extra units.

Up-front allocation bonuses ranging from 1 to 2 per cent are granted depending on the amount invested.

Charges for the investment product include a bid/offer spread of 5 per cent, a 1 per cent annual management fee and a one-off policy fee of £50 (#39).

The minimum investment is £15,000.

EBS offers a similar product without up-front fees or exit charges. The 50/50 account allows 100 per cent of the funds to be invested from the outset. Assuming an investment of £10,000 the 50/50 account invests £5,000 into a SureGrowth guaranteed 5-year fixed deposit account with a current compound annual rate of 5.39 per cent.

The other portion is placed into world stock markets through the Summit Growth Fund.

This fund has achieved an after-tax return of 16.8 per cent for the last five years. The SureGrowth side is fixed for five years, but the Summit Growth Fund is not, although as an equity investment it should be considered a medium to longterm investment.

EBS charges a net annual management charge of 1.4 per cent (1.1 per cent net) and the minimum investment is £5,000.