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A decade of saving!
Member Name: jo1976
Date: 22/04/10, updated on 30/03/12 (1380 review reads)
Advantages: Long term investment with a guaranteed minimum sum and life insurance element, good service
Disadvantages: Small returns on money invested, small amount of life insurance cover
10 years ago, I didn't have access to the internet in the way that most people do now so I picked up information on savings accounts, ISA's and investments from newspapers and magazines (which sounds very archaic nowadays!) This is how I discovered the Scottish Bond offered by Scottish Friendly which is a kind of regular savings scheme, making use of a 'friendly society tax exempt savings allowance' and subsequently took out a bond with them.
We're not talking massive sums of money here at all so this isn't a way for lottery winners to invest their sudden windfalls. The minimum amount you can save is £10 per month and the maximum is £25 per month (which is the option I chose) and the bond takes 10 years to mature and reach payout. At the end of every year, a bonus is added on to the money you've invested throughout the year which is then guaranteed once the plan receives its agreed term. The bonus depends on the performance of the stock market during that year but is likely to be relatively small. Looking back through my annual statements, I received just under £50 back in 2002 but this dropped to £22 in 2003. More recent bonuses have fluctuated somewhere between £20-£25 so this isn't a fast way to loads of cash, by any means!
Unlike standard savings accounts, there isn't a set 'interest rate' paid on the money as this is an endowment policy which is affected by fluctuations in the stock market. This is one of those occasions where you will see a disclaimer along the lines of 'the value of your investments can go up as well as down.' Having said that, I don't think this is a particularly risky method of investing in the stock market, as the sums of money involved are relatively small and drip-fed over a long period of time. The downside to that is that the returns are also likely to be relatively small.
There is some reassurance for the risk averse investor as the bond guarantees a minimum payout which was, in my case, £2617, although this was still less than the amount I would invest in the bond over the ten year course. The bond also includes an element of life insurance for this amount so my 'estate' would receive this guaranteed amount as well as any bonuses already added. When compared to the vast sums of money involved in most life insurance policies it is a pretty minor sum though and probably wouldn't stretch much beyond the cost of a funeral so I wouldn't be swayed by the inclusion of a life insurance element in this product.
It is possible to cash in the bond before the 10 years are up if need be, although you are likely to receive less cash than you have actually paid in so this should only really be considered if you are desperately in need of the money. This really needs to be viewed as a long-term investment and, if that seems restrictive, a Scottish Bond may not be the best place for your money and an instant access savings account may be more appropriate.
The monthly payments are paid via direct debit and, throughout the last decade, I haven't had any issues about payments whatsoever. In fact, I've had very little cause to make contact with Scottish Friendly at all, which I tend to see as a positive. The only time I've needed to contact them has been to notify them of changes in my circumstances. (I've changed address three times and got married once in the past decade!) Notifying Scottish Friendly has also been very straightforward as each annual statement included a simple slip to complete and send back if there are any changes to these sorts of details. For the change of surname, I also had to send a copy of my Marriage Certificate which is pretty standard practice for most financial institutions. Throughout these changes, my payments continued without any hitches and I always received my annual statements which gave me details of the bonus paid each year.
I am pleased to say that I've never been subjected to any intrusive marketing telephone calls by Scottish Friendly, although they do occasionally send me details of other financial products available such as their Child Trust Fund and ISA products. The bond has been the only product that I've ever invested in personally.
Well, ten years, one marriage and two children later and my Bond has finally matured. Having invested the grand total of £3000 over the course of the past ten years, I have received a cheque for £3,290.04. Admittedly, it doesn't seem a great deal of money in return for squirreling cash away over such a long period of time. I'm not financially astute enough to be able to calculate the equivalent interest rate that I've effectively received on my savings, particularly as this has been a cumulative account (as I had £300 saved by the end of year one, £600 by year two etc) rather than investing £3000 as a lump sum.
I would hazard a guess that I would have actually earned more money had that money been put straight into a savings account with a high interest rate over the past ten years. £290 isn't a life changing sum of money by any means (especially taking into account increases in the cost of living over the last decade.) Perhaps I should have blown that surplus cash on fast cars, expensive champagne and luxury holidays whilst I had the chance!
Thankfully, I didn't have to wait long to receive my settlement cheque (well, aside from the ten year wait!) I received notification from Scottish Friendly in the middle of March this year that my bond was approaching maturity and including a form to complete and sign to confirm that I wished to cash in. Following that, my cheque was received within the space of a week which is quite reassuring.
With the benefit of hindsight, I probably wouldn't have invested money in one of Scottish Friendly's bonds. My experience hasn't been a negative one, by any means, but I think there are more lucrative ways of locking away small sums of money over the long term, even bearing in mind current low interest rates. I would personally consider setting up a fixed rate high interest regular savings account rather than one of these, whenever (if ever) I have surplus cash to spend again! Given the restrictions and timescales involved in these sorts of bonds, the relatively small profits made don't really seem to be worth the commitment involved.
If you are interested in this type of investment or any other financial product from Scottish Friendly, more information can be found on their website www.scottishfriendly.co.uk
Summary: Friendly but not very financially lucrative!