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Newcastle performs balancing act

Newcastle Building Society has unveiled the balanced guaranteed equity bond which combines a one-year fixed rate bond with a guaranteed equity bond.

Investors can place up to half of their investment in the fixed rate bond element. This is a savings account that pays interest at 8 per cent gross a year until August 31, 2002 and withdrawals are not allowed during the fixed rate period.

The rest goes into Newcastle&#39s global guaranteed equity bond which is linked to three stockmarket indices — the FTSE 100, Nikkei 225 and Eurostoxx 50 — for five years.

This element of the investment aims to provide up to 85 per cent of the average growth in the indices during the five-year term and investors&#39 original capital is returned regardless of the performance of the indices.

The starting level of each index is recorded at the beginning of the term. It is then compared to the closing level, which is based on the average level of each index from September 2005 to August 2006.

Some investors are looking for higher returns than they would currently get from a building society account as interest rates have fallen. This type of investor may be unwilling to take the risk of investing in stocks and shares, particularly as global stockmarkets are volatile.

The balanced guaranteed equity bond could meet their needs as the returns are boosted by the bond element, without putting capital at risk.

However, this product may not suit all investors. Some may prefer to put more than half in the savings account and less in the guaranteed bond element, which they cannot do. Also, investors cannot get access to their money tied up in the one-year savings account. This could be a problem if they need cash in an emergency.

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