Nic Cicutti finds that Barclays' new baby, b2, offers its customers more style than substance

Millions of risk-averse bank and building society customers are to be targeted by a new, "hip" subsidiary of Barclays Bank, offering equity-linked products that guarantee money back should stock markets fall.

Barclays has set up b2, a telephone-based operation which aims to wean savers away from an ingrained tendency to stash their cash in deposit accounts.

According to b2, 4 million Britons "lost" an average pounds 2,700 each by not investing in the stock market. Although they made pounds 246 in interest payments from their accounts, had they placed their money in shares they would have gained 10 times that much.

To win them over, b2 will offer an advanced savings account (ASA), a fund that can be placed in a tax-free PEP or new Individual Savings Account from April 1999. Unlike typical savings accounts, this one gives investors limited exposure to the stock market through its Stock Market Growth Fund, which aims to outperform the FTSE 100 share index.

But, unlike most equity funds, the ASA guarantees that should the market fall during one of three investment periods - three, five or seven years - savers' money will be returned in full.

Mark Bogard,managing director of b2, says: "Many people feel that they could make more of their money than in the building society. They simply don't feel confident or comfortable to do anything about it.... We have spoken to thousands of savers and found they wanted that gap bridged by a company with the know-how, security and stability of a blue-chip financial provider. Savers want something safe but exciting. b2 will deliver that. It's a small name that stands for a big idea."

In truth, the big idea, which took Barclays 18 months to refine, is also an old idea. It involves offering a so-called "guaranteed product", where a slice of a person's investment buys a derivative product which is used to meet the guarantee of a return of funds if stock markets should fall.

Whereas other guaranteed funds set a 5 per cent cap on potential losses each quarter, the ASA returns funds in full - but only as long as the money is left invested over the pre-agreed period referred to earlier. Otherwise, the guarantee will only cover 85 per cent of a fund's value: if stock markets fall by more than that - tough.

The cost of this guarantee is extremely high. Typically, between 5 and 8 per cent of the sum invested is used to buy the derivatives to protect the capital. In the case of b2, it is between 13.7 and 13.9 per cent.

The effect of this is simple: if the Stock Market Growth Fund were to rise by 45 per cent over three years, a reasonable bull run, the value of a pounds 100 investment would be pounds 124.84, equivalent to about 8.2 per cent a year. Hardly that exciting. Of course, this doesn't include dividends, which might add 2 per cent or more annually. But then, the company's 1.5 per cent annual management fee plus 0.9 per cent bid-offer spread would dent those.

The essence of the new b2 account, however, is the premise that today's investors want a combination of things. One of them is accessibility. b2 aims to provide it with instant access, total flexibility as to payments, telephone access seven days a week and no penalties for withdrawals.

The company calculates that its trendy image will help it break into the market for building society accounts. Whether it succeeds depends on the level of excitement prospective clients are seeking. Judging by the product they are being tempted with - not much.