Obtaining an income of 10 per cent a year or more with reasonable safety is almost impossible in the current interest rate environment, especially as it looks likely that the next move in rates will be down.
Nationwide, for example, has already reduced its rate slightly in anticipation of this. So it is even more creditable that NDF, working with Abbey National Treasury Services, has come up with the Extra Income and Growth Plan 5. This offers an annual rate of 10.05 per cent for three years or 30.3 per cent growth over the term, with full capital return unless the Eurostoxx 50 index, to which it is linked, falls by more than 15 per cent during the investment period and does not recover.
It is possible to invest into Isas for both 2000/01 and 2001/02, so a married couple can invest a total of £28,000 tax-free. Outside the Isa, basic-rate taxpayers pay only 10 per cent on income in contrast to 20 per cent on bank and building society accounts, while higher-rate taxpayers pay only 32.5 per cent instead of 40 per cent.
Investors can put £25,000 directly into
the growth option and receive £7,575 free of tax by using their capital gains tax allowance.
With stockmarkets looking volatile over the next year or so, it could be a wise decision for investors to transfer their Peps into this product and lock into an income of over 10 per cent a year or growth of 30 per cent.
Future Value Consultants, the independent organisation which rates these products,
gives the plan the highest rating it has ever given for higher-rate taxpayers – nine out of 10 – or eight out of 10 for basic-rate taxpayers. The returns to investors are underwritten by Abbey National Treasury Services.