Skipton Building Society has introduced a five-year guaranteed growth bond that is linked to the FTSE 100 index.
The bond guarantees that investors will get their original capital back at the end of the term plus a return of at least 26 per cent, regardless of how the index performs. The maximum growth potential is 50 per cent.
The starting level of the FTSE 100 index is taken on October 2, 2001 and on each anniversary during the term. Investors get an 8 per cent return for each year that the index has increased when compared to the previous year. To get the maximum return, the index must increase during every year and if this happens, a 10 per cent bonus is added to bring the growth up to 50 per cent.
Where the index increases between one and three times, investors will only get 26 per cent growth plus their original capital. They will get growth of 32 per cent if the index rises four times during the term.
This bond will suit investors who are looking for capital growth over the medium-term without putting their capital at risk. However, it may face stiff competition from similar products as falling stockmarkets have created a climate of caution among investors.
Skipton guarantees higher minimum growth compared to Alliance & Leicester's five-year FTSE 100-linked bond which guarantees at least 20 per cent of growth plus the return of the original capital. However, Alliance & Leicester offers higher maximum growth at 60 per cent.
According to FTSE, the FTSE 100 index rose from 2673.25 points on July 26, 1996 to 5286.07 points on July 26, 2001.