Skipton Building Society is feeding the current frenzy for guaranteed products with its 5-year guaranteed growth bond.
The bond will track three stockmarket indices, the FTSE 100, Eurostoxx 50 and S&P 500, over a five-year term. It will return the original capital to investors however these indices perform, plus a minimum of 22 per cent growth. The maximum growth potential is 50 per cent.
The starting level of indices are taken on January 4, 2002 and on each anniversary during the term. Investors get an 8 per cent return for each year all three indices increase, when compared to the previous year. To get the maximum return, all the indices must increase during every year. If this happens, a 10 per cent bonus is added to bring the growth up to 50 per cent.
The advantage this bond has over some similar products is the guaranteed minimum growth of 22 per cent on top of the original investment. This may look attractive at the moment as interest rates are low and volatile stockmarkets do not make ideal conditions for introducing novice investors to stocks and shares.
However, the maximum growth of 50 per cent may not be enough to satisfy these investors as they could lose out when the stockmarkets start climbing again.
Newcastle Building Society recently created the capital safe bond, a similar product tracking the FTSE 100, Eurostoxx 50 and Nikkei 225. It offers investors the return of their original capital and growth of up to 85 per cent. However, a larger share of the upside potential is offered only because it does not guarantee a minimum return above the original capital.