Northern Rock has introduced the eighth issue of fifty:fifty, a guaranteed equity bond and high interest account packaged within one product.
The guaranteed equity bond element tracks the performance of the FTSE 100 over a five-year period which ends on June 12, 2007. To calculate the returns, the closing level of the FTSE 100 index is recorded at the start of the term and an average is taken during the final year. Investors get 75 per cent of any increase in the index and are guaranteed the return of their original capital, whatever happens to the FTSE 100 index.
The high interest account is a one-year fixed-rate bond paying 10 per cent gross a year until June 1, 2003. Withdrawals are allowed during the fixed-rate period, but are subject to the loss of 60 days' interest as a penalty.
The five-year term on the guaranteed equity bond element may be a more suitable time span to track an index than similar products such as Barclays guaranteed equity savings bond. This rival combination product has a three-year term on its guaranteed equity bond element that could expose investors to shorter-term volatility in share prices.
Comparing the high-interest account elements of the bonds, Northern Rock's 10 per cent fixed rate over one year is generous compared to the 8 per cent from Barclays over one year. Like Northern Rock, Barclays also allows withdrawals from this element subject to 60 days' loss of interest, but it imposes a £1,000 minimum withdrawal on investors, whereas Northern Rock specifies no minimum withdrawal.