Britannia Building Society has added to the current flood of guaranteed equity bonds with its 5-year guaranteed capital equity bond.
The bond is linked to the FTSE 100 index for five years and enables investors to receive their original capital back whether the index rises, falls or stays the same. If the index stays the same or rises during the term, investors get a return of 38.25 per cent, plus their original capital.
Investments must be made before July 2, 2002 and benefit from interest of 6 per cent a year until the investment term starts of July 16. On July 16, the closing level of the FTSE 100 index is measured and this is compared with the average closing levels during the final year of the term.
This bond is not as complicated as some guaranteed equity bonds, but it limits growth potential to a fixed percentage at the outset, which could be a major disadvantage if the UK stockmarket performs as well as it is expected to as the global economy heads towards recovery.
Abbey National's safety plus growth bond is a similar product that measures the FTSE 100 index at six-month intervals, with growth capped at 5 per cent for each period. It has maximum growth potential of 50 per cent over the five-year term and also guarantees a minimum return of 20 above the original capital.
Some investors would prefer this compared with Britannia's fixed rate of 38.25 per cent gross. However, Britannia's bond may produce higher returns if the FTSE 100 index does not increase very much from one six-month period to the next.