DBS

28 OCT 1998 - OCT 1990 BASE RATE 14.875% WHY INVEST? IMPRESSIVE POSITIVES The DBS market remains relatively small, but is likely to grow as issuers look to tap into current market conditions (as savers continue to be disappointed with what’s available on the high street). CASH BEATING YIELDS In January 2017, the Bank of England reported that the effective average bank deposit account rate paid on households’ outstanding term deposits decreased by 6bps to 1.13% in November and the rate for households’ new term deposits decreased by 10bps to 0.82%. By June 2017, these rates stood at 0.89% and 0.90% respectively. The Bank also projected in its August 2017 Inflation Report that base rates would rise to just 0.8% by Q3 2020, with no guarantee of how closely bank rates on cash deposits might follow 45 . As well as this, interest rate movements in the near future are uncertain, with inflation rising and dropping. This means that savers may still have to wait some time for a meaningful increase 46 . The prolonged low-yield period thanks to the post-Brexit economic reverberations, with interest rates expected to remain lower-for-longer, could be a real positive for DBS. For those working hard to seek out desirable, stable yields at reasonable risk, it could be a very interesting asset class. They certainly haven’t been getting that from banks – in August 2017, the ‘This is Money’ savings table reported that the top five year fixed rate savings account paid just 2.50% 47 before tax. Moneyfacts points to a lack of competition in the market, with some providers preferring to drop out rather than be caught out by paying higher rates than may be necessary in the UK BASE RATE FTSE 100 AND FTSE ALL SHARE VOLATILITY SOURCE: BBC AND THE BANK OF ENGLAND 1976 1986 1996 2006 2016 20% 15% 10% 5% 0 future. This leaves less competition and poor choice for savers 48 . A DBS investment undeniably carries a greater risk than bank savings, although the interest rate is often designed to compensate for this and a very robust income stream, combined with secure asset backing, makes returns that could be three or four times those offered by banks very attractive. LOWER VOLATILITY THAN EQUITY With crowdfunded bonds, debentures and loan notes, investors can sell their holdings during the term of the investment, even if the value fluctuates according to other investors’ appetites. However, historically, bond prices fluctuate less than stock prices. Depending on how you invest in them, they can offer returns that are very reliable, so they can be a stabilising factor for a portfolio 49 . Volatility in equities can be very unsettling and markets are at the whim of changing sentiment – 2016 demonstrated that; not just with the stock market movements after the Brexit vote, but also in the first few months of the year when panic about another financial crisis led to the most volatile start to stock market trading since 2008 50 . Stocks are more likely to have large swings from day-to-day, and bonds MAR 2009 BASE RATE 0.5% AUG 2016 NEW RECORD LOW 0.25% FTSE ALL SHARE FTSE 100 SOURCE: LONDON STOCK EXCHANGE -10% 0% 10% 20% 30% 40% 50% 60% TODAY 1 MONTH 3 MONTHS 6 MONTHS 1 YEAR 3 YEARS 5 YEARS JAN 2013 JAN 2014 JAN 2015 JAN 2016 JAN 2017