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Another guarantee from Scot Wids

The Scottish Widows guaranteed investment bond is a FTSE 100-linked guaranteed equity bond with a term of five years and six months.

Investors in the product will receive a full capital return regardless of the performance of the index plus 75 per cent of the growth in the index at the end of the term.
An early investment bonus of between 0.1 per cent and 0.5 per cent of the amount invested will be applied, depending on how many days the money is invested before the end of the offer period.

To calculate the returns the closing level of the FTSE 100 is taken on the first day of the term and compared with the daily average of the closing levels over the last 12 months of the term.

According to the product database on the Structured Retail Products website, Abbey is currently offering safety plus growth, a guaranteed equity bond linked to the FTSE 100 index for five years and six months.

However, the Abbey product differs from Scottish Widows bond in that it has a cliquet structure where the investment tern is divided into six month segments, The performance of each segment is recorded, subject to a maximum rise and fall of 4 per cent. This means the maximum growth potential is 44 per cent.

To get a higher return than this from the participation rate of the Scottish Widows plan the index will need to rise by at least 60 per cent. However, it may be difficult to achieve the maximum 44 per cent growth from the Abbey plan because the index will need to rise by at least 4 per cent every month during the full investment term.

On the other hand, if the index performs best during the middle of the term, the Scottish Widows will not take it into account because is uses an average over the last 12 months of the term. In contrast, the performance of the index all the way through the term will count towards the returns of the Abbey product.


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