Northern Rock Guernsey has introduced a guaranteed equity bond that offers 110 per cent growth in the FTSE 100 plus the original capital regardless of the performance of the index after five years.
The bond is also available with a three-year term offering 80 per cent of the growth in the index plus the return of the original capital on the same basis.
To calculate the returns, the closing value of the FTSE 100 is taken on September 17, 2003 and compared with an average taken over the last six months of the three-year term and the last 12 months of the five-year term.
The five-year bond's 110 per cent participation rate makes it competitive compared with the optimum growth bond, a product from Britannia International.
The Britannia International bond will offer 105 per cent growth in the FTSE 100 plus a full capital return after five years six months. This means investors will tie their money up for an extra six months to get a slightly lower return than the Northern Rock Guernsey product.
However, the Britannia International product differs from Northern Rock Guernsey's product in that it will mature after three years six months if the FTSE 100 index has risen by 31 per cent or more at that point. Where this happens, investors will receive a return of 31 per cent plus their original capital.
Comparing the 31 per cent early maturity rate with the potential return from the Northern Rock Guernsey three-year bond, the index would need to rise by at least 40 per cent for the Northern Rock product to match Britannia International's return after three and a half years.
However, the Northern Rock three-year product has the advantage of a certain term and investors could receive more than 31 per cent over a shorter period.