Yorkshire Building Society has teamed up with Legal & General to offer the combination bond.
The bond is a fusion of a two-year fixed rate savings account from Yorkshire Building Society and the with-profits income bond from Legal & General. Investments are split equally between the two elements.
The savings account part of the bond pays 7.25 per cent gross a year until August 31, 2002. Alternatively, investors can take monthly interest at 7.02 per cent. If they need cash in an emergency during the fixed rate period, they can make one withdrawal of up to 25 per cent of their balance.
The with-profits bond pays investors an annual bonus, which is currently 6.25 per cent net of basic rate tax. The level of the bonus depends on the performance of its underlying investments and how Legal & General views future performance, so it cannot be guaranteed. The bonus can be taken as income or reinvested for capital growth.
The combination bond is likely to prove attractive to cautious investors, perhaps those who are retired and who are looking for a regular income stream. Northern Rock's balance-choices is similar and also invests in Legal & General's with-profits income bond.
Investors in both products will get the same with-profits bonus but Northern Rock has a lower interest rate at 7.05 per cent until July 1, 2002. Northern Rock allows investors to choose how much to invest in each element, whereas this flexibility is denied to those who choose the Yorkshire Building Society.