Baronworth Investment Services has unveiled series five of its combination investment, which splits investors' capital equally between a guaranteed income bond and a with-profits bond.
Half of the investment will go into Countrywide Assured's two-year guaranteed income bond. This offers a return of 6 per cent a year, but investors who prefer monthly income will get the equivalent of 5.84 per cent a year. Investors are guaranteed the return of their original capital at the end of two years and the income is fixed throughout the term.
The remainder of the investment goes into Prudential's prudence with-profits bond and will return 5.7 per cent. This rate is a combination of the bond's current annual bonus of 4.5 per cent with the terminal bonus. However, it could change in February 2003, when Prudential's bonus rates are declared.
Cautious investors who are looking for income without putting their capital at risk may find this product attractive because it offers enhanced returns compared to investing in each element separately. For example, Countrywide Assured's range of guaranteed income bonds offer between 2.95 per cent and 4.93 per cent. Investors would get the rate of 4.93 per cent only if they invested at least £50,000 for five years.
However, the guaranteed equity bond element guarantees the return of the original capital only if investors stick to the two-year term. Similarly, penalties will apply if investors encash the with-profits bond element within the first five years and this may make it unsuitable for those with a shorter-term view.