Savings Explained
Guaranteed
equity bonds
Guaranteed equity bonds
(Gebs) provide a half-way house for investors who want exposure to the stock market,
without taking on the full risk.
Gebs are linked to a stock market index, usually the FTSE 100 or FTSE All Share,
and they run for a fixed term. The return you get will depend on what has happened
to the stock market over that time. However, the main attraction of Gebs, is that
if the market falls you will not lose all your money.
Gebs guarantee to pay a minimum return. This varies depending on the product, but
some will promise to repay all the capital you invested at the outset, while others
repay a proportion of it.
This protection comes at a price, however. If the index your investment is linked
to rises over the term, you will not benefit from the full uplift and dividends
tend not to be included.
Returns are usually based on a proportion of the growth and they tend to be calculated
using averages rather than the percentage increase over the fixed term.
This protection comes at a price, however. If the index your investment is linked
to rises over the term, you will not benefit from the full uplift and dividends
tend not to be included
For example, the FTSE 100 may rise 20% over a three-year period. However, this does
not mean you will get back 20% more than you initially invested. Instead, the return
may be calculated using the index level at the start date and the average daily
closing level over the final year of the term. It sounds complicated, and it is
complicated. It is often very difficult for individuals to work out exactly how
much they will get back when their Geb matures.
When comparing Gebs, you therefore need to read the small print and ensure you understand
how your returns will be calculated. You can then decide whether the price you are
paying for capital protection is worth it.
National
Savings & Investments
Products from National Savings & Investments (NS&I) are a popular choice with savers
because the firm is backed by the Government and it is therefore seen as the safest
home for your money.
NS&I offers a range of savings vehicles including tax-free accounts, fixed rate
deals and inflation-proof accounts. However, the interest rates are not always that
competitive so it is important to see how NS&I’s deals compare with other
savings accounts
in the market.
Products from National Savings & Investments are a popular choice with savers because
the firm is backed by the Government and it is therefore seen as the safest home
for your money
While not protected by government-backing, money deposited with banks and building
societies is covered by the Financial Services Compensation Scheme. In the event
of an institution going bust, the first £50,000 is 100% guaranteed.
Continue to Page 6 to Minimum deposits >>
