Abbey National has introduced safety plus growth 10, a guaranteed equity bond that provides minimum growth of 17.5 per cent and maximum growth of 45.1 per cent.
The bond is linked to the FTSE 100 index through a Dublin-based company called Quaich Investments 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 4.1 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 which have the potential for higher returns and conditional guarantees, such as Keydata's dynamic growth plan. The Keydata bond returns investors' original capital provided the FTSE 100 index does not fall by more than 50 per cent during the five-year term and does not guarantee a minimum level of growth above this.
However, the potential returns are double the growth in the index up to 80 per cent, which could be higher than the maximum 45.1 per cent offered by Abbey National.