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Skipton three up

Skipton Building Society has brought out a guaranteed equity bond that is linked to the FTSE 100 index over a three-year term.

Investors will get their original capital returned at the end of the term and will also receive 100 per cent growth in the index.

To calculate the returns the closing level of the index will be taken on April 20, 2004 and compared with the average closing levels of the index during the final six months of the term. There is a minimum return of 105 per cent, so even if the index rises by less than 5 per cent during the term. There is no cap on the maximum growth attainable.

This product offers more choice for investors who are looking for a guaranteed equity bond with a shorter term than the usual five or six-year products.

NatWest is offering a three-year guaranteed bond that is also linked to the FTSE 100 index for three years. In addition to a full capital return regardless of index performance, this product offers a minimum return of 7 per cent growth &#45 slightly higher than is available with the Skipton product.

However, the NatWest product has a cliquet structure which limits growth potential to 6 per cent every month, while falls in the index are limited. This means its overall growth potential is capped at 72 per cent plus a capital return, which is potentially lower than the Skipton product. For example, of the index rose by 80 per cent, Skipton investors would benefit form all this growth whereas NatWest would be subject to the 6 per cent a month limit and would get no more than 72 per cent growth.

IFAs tend to dislike the shorter term as they believe three years is not long enough for a stockmarket-linked investment. However, as both the NatWest and Skipton products do not put capital at risk, they may have some value for investors with a relatively short-term view.

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