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Second digital growth deposit from Morgan Stanley

Morgan Stanley IQ has introduced a second issue of its digital growth deposit, a shorter term FTSE 100 linked structured deposit.

At the end of the three years and nine month term, investors will receive a fixed return of 16.35 per cent, plus their original capital, provided the FTSE 100 index is at it above its initial value. If the index has fallen below its initial value, investors will receive a 2 per cent minimum return plus the original capital.

The first issue of this plan, which closed in May, provided a slightly higher potential return of 17 per cent. The second issue of the plan shares the previous version’s simplicity, which is one of its strengths. As a structured deposit, investors’ capital is never at risk from index performance, so it is likely to suit more cautious investors who want the potential for a higher return than they would get from a savings account given the low-interest rate environment. However, the capital protection will depend on the deposit taker’s ability to repay the capital at maturity. In this case the deposit taker is Lloyds TSB Bank, which is A+ rated by S&P and Fitch. Lloyds TSB is also rated A1 by Moody’s.

Option two of Investec Structured Products’ FTSE 100 3-Year deposit plan 34 is similar but its term is nine months shorter than the Morgan Stanley product. It provides 14 per cent growth plus capital if the index rises above its initial value at maturity or a minimum return of 3 per cent plus capital if the index has fallen. The deposit taker is Investec Bank, which has no S&P rating, a B rating from Fitch and Baa3 rating from Moody’s.

Choosing between the plans may depend on investors’ views of the respective counterparties and whether they prefer Investec’s shorter term which accounts for the lower return, or whether they want to tie their money up for a further nine months to achieve Morgan Stanley’s higher potential return.

However, both plans tax returns as income rather than as a capital gain, unless the investment is made through an Isa.


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