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Bank of Ireland looks for balance

Bank of Ireland has introduced the balanced guaranteed equity bond issue 27, which combines a guaranteed equity bond with a choice of two fixed rate savings accounts.

The savings account element consists of a six-month fixed-rate account paying 5.7 per cent gross and a three-year fixed-rate account paying 14 per cent gross a year.

The six-month account allows investors t access their money during the fixed-rate period as long as at least 500 remains invested. Withdrawals of at least 500 can be made from the three-year account during the fixed-rate period, excluding the first and last months, but this is subject to a withdrawal fee. Investors can choose to split their capital among one or both of these accounts alongside the guaranteed equity bond element.

The guaranteed equity bond element is linked to the performance of the FTSE 100, S&P 500 and Europe Public Real Estate Association Index (Epra Europe) for a term of five years and two months. Investors will receive their original capital back regardless of the performance of these indices, plus a minimum return of 12 per cent on top of this.

To calculate the returns, readings are taken for each index on the first day of the investment term and compared with an average produced over the last year of the term. A final average is then produced which takes into account all the indices and investors will receive 60 per cent of this. If this amount equates to less than 12 per cent, investors will still receive the minimum 12 per cent growth.

Some investors will go for this product because not only is it flexible in its combination of growth and income elements, the growth element attempts diversity across regions and asset classes through the three indices.

Although it is designed to be held for the duration of the term, the ability to make withdrawals is useful. However, the withdrawal fee may be substantial in relation to the amount withdrawn and cannot be predicted in advance because it is based on the amount withdrawn, how long is left to run on the term and either the Bank Base Rate or money market rates depending on whether withdrawals are made from the income or growth elements.

For example, a 3,000 withdrawal made form the guaranteed equity bond element on a 10,000 initial investment, assuming a Bank Base rate of 4.5 per cent would be 247.27 if there were 18 months left to run of the term.

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