Abbey National has introduced safety plus growth 9, a guaranteed equity bond that provides minimum growth of 20 per cent and maximum growth of 55 per cent.
The bond is linked to the FTSE 100 index through a Dublin-based company called Quaich Investments 9 and there is also an Isa version of the product. Both versions guarantee the return of investors original capital whatever happens to the index, plus the minimum growth.
To calculate the final returns, the average level of the FTSE 100 index is recorded for each six-month period during the term. The growth for each period is capped at 5 per cent, so any increase in the index above this is not passed on to investors. These six-monthly averages are then added together to produce the final return.
The Abbey National bond occupies the lower-risk end of the guaranteed equity bond market, but the problem with many products of this nature is that growth potential is capped. If the FTSE 100 index rises beyond current levels in the next five and a half years, investors will miss out on part of this growth because of the cap.
The minimum growth the Abbey National bond provides could make it more attractive to some investors than products such as the Wesleyan guaranteed equity bond. This guarantees only the return of the original capital at the end of the term.
The Wesleyan bond offers higher growth potential at 60 per cent compared with the 55 per cent offered by Abbey National. However, this reflects a term that is six months longer than the Abbey National bond.