Abbey National has introduced safety plus growth issue 7, a guaranteed equity bond that provides minimum growth of 20 per cent and maximum growth of 50 per cent over a five-year term.
The bond is linked to the FTSE 100 index and investors get their original capital back, plus their minimum return, whatever happens to the index. The maximum return is 150 per cent, which is 10 per cent lower than the previous issue of the bond.
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.
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 shares Abbey National's maximum growth potential of 50 per cent, but investors can only lock in 8 per cent growth a year. This compares unfavourably with the Abbey National bonds' ability to lock in 5 per cent every six months. Also, as Skipton's bond is linked to three indices, it may be more difficult for investors to achieve the maximum growth compared to the Abbey National bond.