Northern Rock and Legal & General have joined forces to introduce balance-choices, a combination of a with-profits bond and an instant access savings account.
Investors can divide their investment between the two elements within specified limits. They can invest between 50 and 80 per cent in the Legal & General with-profits income bond, which invests in shares, fixed interest securities and commercial property. The rest must go into the Northern Rock instant access savings account, which has a fixed interest rate of 7.05 per cent until July 1, 2002.
The with-profits part of the investment provides cautious investors with higher returns than building society accounts without exposing them to stockmarket volatility. This is useful in the current climate, as interest rates are low and the performance of the stockmarket has been moving in the wrong direction.
The with-profits element pays investors an annual bonus, which is currently 6.50 per cent net of basic rate tax. The amount of the annual bonus is not guaranteed because it depends on the performance of the underlying investments and Legal & General's expectations of their performance in the future. This means that investors could get higher or lower bonuses in subsequent years, which illustrates its lack of transparency.
On the other hand, investors do have penalty-free access to some of their money through the instant access account, which gives them a greater degree of flexibility than investing exclusively in with-profits.