National Savings and Investments and the West Bromwich Building society have both introduced FTSE 100-linked guaranteed equity bonds with a five-year term.
The National Savings and Investments guaranteed equity bond offers 100 per cent capital protection, whatever happens to the index. If the index increases by up to 65 per cent, investors get all this growth. But if the index increases by more than that, they still get 65 per cent. To calculate the final return, the average daily closing of the index over the first five days of the term is taken as the start date. This is compared with the average daily closing level of the FTSE 100 index over the last six months of the term.
The West Bromwich capital extra bond differs in that it guarantees the return of capital, plus a 17.5 per cent return on top of this. However, its maximum growth potential is lower than the National Savings product gat 50 per cent. To calculate the returns the average level of the FTSE 100 index is taken over the first three months of the term and compared with the average level over the final 12 months of the term.
Investors who are looking to gain indirect equity exposure through guaranteed equity bonds are spoilt for choice. However, the National Savings and Investments bond could have the competitive edge over its rivals for very cautious investors because the Government backs the capital guarantee.
However, some investors may prefer the West Bromwich product because its guarantee goes beyond the return of the original capital. They will get a return on their investment even if there has been no growth in the FTSE 100 index and may be less inclined to feel their money could have been working harder for them elsewhere.