Northern Rock Guernsey has established the 10th issue of its offshore fifty fifty product, a combination of a guaranteed equity bond and a high interest account.
Investors must split the minimum investment of £10,000 equally between the two elements. The high interest account element is a two-year fixed rate bond that pays interest at 7.5 per cent a year until September 11, 2004. Withdrawals can be made from this element but they are subject to 90 days' loss of interest as a penalty.
The guaranteed equity bond element is linked to the FTSE 100 index for five years. The closing level of the FTSE 100 index on September 11, 2002 is compared to the average closing level of the index between September 12, 2006 and September 11, 2007. If there has been any increase in the FTSE 100 during the term, investors get 70 per cent of this growth in addition to their original capital, regardless of the performance of the FTSE 100. But withdrawals are not allowed from this element of the product.
By investing in this combination product, investors get a higher rate of interest on the high interest account element than is available on the company's fixed-rate bond range, which offer between 4.5 and 5.15 per cent gross a year. They also get complete capital security on the guaranteed equity bond element.
However, the main drawback is that investors get 70 per cent of the average growth in the index. Even if the index rose by 70 per cent, only 70 per cent of this growth would be passed on to investors, giving a final return of 49 per cent.