Abbey National has introduced safety plus growth issue 6, a guaranteed equity bond that is linked to the FTSE 100 index over a five-year term.
The product guarantees the return of the original capital plus a minimum of 20 per cent growth. The maximum potential growth is 60 per cent at the end of the term. 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 6 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.
Skipton Building Society's five-year guaranteed growth bond is a similar product that also tracks the FTSE 100 for five years. Like the Abbey National bond, the Skipton product guarantees the return of the original capital and a minimum amount on top, whatever happens. The minimum amount is 22 per cent, which is slightly higher than the Abbey National bond. The Skipton product also has a higher maximum growth of 70 per cent. But it is linked to three indices the FTSE 100, S&P 500 and Eurostoxx 50 and depends on all the indices rising each year to get the maximum return.
Diversifying across global stockmarkets may reduce the risk of relying on one region to perform well, so in this respect the Skipton product is preferable. However, the UK is looking good compared to other regions and diversifying may not take full advantage of the growth potential in the FTSE 100 index.