Northern Rock has introduced the 11th 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 September 11, 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 70 per cent of any increase in the index, which is 5 per cent lower than the previous onshore issue. They are also guaranteed the return of their original capital, whatever happens to the FTSE 100 index.
The high interest account is a two-year fixed-rate bond paying 8 per cent gross a year until September 1, 2004. Withdrawals are allowed during the fixed-rate period, but are subject to the loss of 60 days' interest as a penalty.
This product may be useful for investors who want full capital security, with growth potential and a fixed level of income. Other guaranteed products such as Keydata Investment Services extra income and growth plan cater for income and growth investors, but force investors to choose one objective or the other.
The Keydata product also attaches conditions to the return of capital, so there is a risk of capital erosion. However, the Northern Rock products income through the high-interest account element is fixed at 8 per cent for only two years. Some investors may prefer a product such as Keydatas because income of 7.5 per cent is fixed for three more years, but fixing income for longer means more risk must be taken with the capital.