Investors original capital is split equally between the two elements. They will receive 8 per cent gross interest after one year from the high interest account element and 50 per cent of any growth in the FTSE 100 index at the end of the term on the guaranteed equity bond. No withdrawals are permitted during the term and investors will get a full capital return on both elements, regardless of the performance of the index in the case of the guaranteed equity bond element.
To calculate the returns on the guaranteed equity bond element, the closing level of the index is measured on March 4, 2005 and this is compared with the average monthly closing level of the index during the final year of the term.
This product joins a raft of similar combination bonds available from the likes of Cooperative Bank, Britannia Building Society, Birmingham Midshires and Newcastle Building Society. However, the Woolwich product is the only one that is geared towards the IFA market.
Comparing the high interest account elements of the products, the only product to match Woolwich on interest rate is the Birmingham Midshires five year 50:50 guaranteed equity bond. The other providers offer between 7 per cent and 7.5 per cent gross for one year.
Comparing the guaranteed equity bond element of the Woolwich and Birmingham Midshires products, the Birmingham Midshires product comes out top by offering 100 per cent of the growth in the index compared with half that amount offered by the Woolwich.
However, this does not tell the whole story as the calculation of returns is slightly different. The Woolwich uses averaging only at the end of the term, but Birmingham Midshires bases the returns on three-month averaging at the start of the term and 12 month averaging at the end. This means that while the Birmingham Midshires product provides protection form sharp index movements at both ends, it could also constrain growth more than the Woolwich product.
However, as the participation rate of the Birmingham Midshires product is much higher than the Woolwich, the possible constraint on growth is unlikely to cause a problem.