Type: Guaranteed equity bond and high interest account
HIGH INTEREST ACCOUNT
Minimum investment: 1
Interest rate: Fixed rate option 5.5% gross a month, tracker option 0.5% above Bank of England base rate
Term: Until August 14, 2011
Withdrawal penalties: No penalties on tracker option, no withdrawals permitted during the term on fixed-rate option
GUARANTEED EQUITY BOND
Aim: Growth linked to the performance of the FTSE 100 index
Minimum-maximum investment:2,500-no maximum
Term: Six years
Return: 70% of the growth in the index at the end of the term
Guarantee: Original capital returned in full regardless of the performance of the index
Closing date: July 31, 2005
Commission: Initial 2%, renewal 0.5% for IFA networks
Tel: 0845 111 0118
Bristol & Wests guaranteed income and growth GEB is made up of fixed and tracker rate high-interest accounts and a FTSE 100-linked guaranteed equity bond.
Independent Personal Financial Management director Luke Gibbon says: “The income & growth guaranteed equity bond is a deposit-based account that splits the investors capital equally between a deposit account and growth bond that is linked to the FTSE 100 index. The term of the bond is six years.”
Gibbon points out that the deposit account element can be invested into a fixed-rate account paying 5.5 per cent gross or a variable rate tracker account that pays 0.5 per cent above the Bank of England base rate. “The client can choose either account or split 50 per cent of the total investment between the two. Both of these accounts are offering a very competitive rate of interest,” says Gibbon.
Explaining how the other element works, Gibbon says: “The other 50 per cent of the capital in the growth bond will grow by 70 per cent of the increase in the FTSE 100 index. If the averaged index value is lower than the starting value at maturity, then only the capital invested will be returned.”
He notes that the bond pays commission of 2 per cent, which he believes is attractive for this type of investment.
Turning to the negative aspects of the product Gibbon says: “While the deposit element of the bond is attractive, the equity linked element in my opinion is not. By way of comparison, NDF is offering a six-year bond that will return 125 per cent of the growth of the FTSE 100 index with a return of the capital invested if the index is lower at maturity.
“This product also has exit points during the six-year term if certain targets are reached. As investments can be made via an Isa, the returns would be free of taxation.”
Although Gibbon feels the deposit element of the product is good, he would not recommend this product it because of the equity linked element. “I would expect to achieve better returns by placing two elements of the investment separately,” he says.
Gibbon thinks competition will come from other deposit accounts and equity based investments that offer some element of capital protection.
Suitability to market: Poor
Investment strategy: Poor
Adviser remuneration: Good