Co-Operative Bank and Bristol & West have both introduced five-year guaranteed equity bonds that are linked to a basket of four indices.
Both products provide a full capital return at the end of the term, regardless of the performance of the FTSE 100, S&P 500, Nikkei 225 and Swiss Market Index, which each carry an equal weighting. While this means investors are not pinning their hopes on one region, returns could also be diluted if one index performs badly compared with another.
Under Co-Operative Bank's guaranteed stockmarket bond - issue 4, investors will receive 80 per cent of the average growth in the indices. To calculate the returns, the closing level of each index is taken on October 17, 2003 and an average is produced. This is compared with an average taken across the indices during the last 12 months of the term.
Bristol & West's five-year global guaranteed equity bond - issue 7 - provides lower growth of 70 per cent and again, the calculation of the final return is based on averaging over the last 12 months of the term. However, its minimum investment of £2,500 is £500 lower than the Co-Operative Bank product and withdrawals of at least £500 can be made during the term.
Many bonds, including the Co-Operative Bank product, do not allow partial encashment so the ability to do so make the Bristol & West bond more suitable for people who may need emergency access to their money.
However, investors who take advantage of Bristol & West's withdrawal facility must pay an access fee based on the Bank of England base rate and the number of days left to run on the product term. An administration fee of £100 will also apply, so using this facility is expensive and defeats the purpose of a capital guarantee.