Money: Look hard before you buy a b2

After a rash of `teasers', Barclays is unveiling its new product. Isabel Berwick peers beneath the surface

YOU MAY have noticed a sudden rash of apparently meaningless advertisements featuring only the word "b2" against a calming seascape. It's a "teaser" campaign designed to whet your curiosity. All will be revealed tomorrow with the start of a television campaign featuring Richard E Grant on a tropical beach, inexplicably wearing a suit. The actor is promoting Barclays Bank's b2 brand, which was launched last week.

Barclays plans to offer a range of financial products under the b2 name. It claims to have created a "mould-breaking product" combining the safety of a building society account with the growth potential of stock market savings. In fact, however, it's just a twist on an old theme. Barclays misleadingly calls its b2 fund an Advanced Savings Account, but b2 customers are really buying a unit trust plus an expensive guarantee. This type of fund uses derivative contracts to allow you to benefit from stock market gains without exposing you to losses.

The b2 fund is aimed squarely at people who are new to stock market investment and are uncomfortable with the idea that they might lose all their money if they invest in shares.

But b2 is being sold without advice, over the phone, and bypasses Barclays branch staff and independent financial advisers (IFAs). "I'm shocked that it is doing this," says Rebekah Kearey, an IFA in Brighton. "Barclays is making it sound like a building society account but it is a unit trust and savers will get a shock. If they have a PEP and use this as a unit trust they may be liable for capital gains tax."

The launch comes in the same week as NationsBank in the US was fined pounds 4m for mis-selling products to elderly customers. The problem was a sales campaign that presented risky derivative-backed products as being safe investments in government bonds. Scottish Widows is so concerned to make sure that the right people buy its protected funds, the Safety Plus PEP and UK Sheltered Growth Trust, that it only sells through IFAs.

Kevin Sime, at Scottish Widows, says investors in these "protected" funds should expect to lose some of the potential returns from equities as the price of a "peace of mind" contract that makes sure they won't suffer too much in a crash.

But Barclays does seem to offer a free lunch in investment terms as b2 guarantees that you will get back 100 per cent of your initial investment, even if the market crashes. This is what allows Barclays to call its product guaranteed, rather than just "protected" like other similar unit trusts. If the market goes up, your savings will be boosted by the full growth of the shares in the fund, including dividends. Most other protected funds won't give you the full value of any share price rises. The money invested by b2 savers will go into a managed unit trust fund investing in UK blue-chip shares, rather than a tracker fund, which follows the FT-SE 100 index.

There is (of course) a catch. To get the benefit of the 100 per cent guarantee you have to commit to the b2 fund for a fixed period - three, five or seven years.

For every pounds 1,000 invested in b2 at launch, pounds 138 will be held back to pay for the guarantee. So almost 14 per cent of your money never goes on to the stock market and your gains will only be made on the remaining pounds 862 of every pounds 1,000. You don't earn any interest on the money used to pay for the guarantee. If the stock market simply doesn't grow much beyond its present level, or the fund turns out to be a dud (it has no track record) then you may be disappointed.

There are much more flexible "protected" unit trusts available if you are willing to take a little more risk (see box). Most of them put all your money on to the stock market, less an initial and annual charge, so you get more exposure to shares and are protected against crashes. Also, these funds "lock in" value already gained from the rise in share prices and restrict the minimum floor price of units (below which your investment cannot fall). This is no less than 95 per cent of the value of the units on a specific day.

Unit trusts with added protection

The following offer protection against stock market falls - but there is a cost to buying the guarantee which safeguards your investments. All funds are PEPable and should be eligible for ISAs.

Name Minimum How much Cost? Notes

payment could I lose?

b2 0800 626262 pounds 50month nothing-15% 14% guarantee 100% money back guarantee pounds 1,000 lump sum (refundable) if you leave cash invested for

Annual fee. a fixed term. Actively 1.5% managed UK fund.

Edinburgh Safety First pounds 30month 5% per year 2-5% guarantee Actively managed UK fund.

0800 838993 3.5% initial 1% penalty if you withdraw 1.25% annual in first year

Govett UK Equity pounds 25 month 2% per quarter 5.5% initial Offers exposure to FT-SE100

Safeguard pounds 1,000 lump sum 1.25% annual

0845 300 909090

Scottish Widows pounds 30 month 5% a year 3% initial FT-SE 100 tracker fund

UK Sheltered Growth pounds 1,000 lump sum 1.25% annual

Trust (sold by IFAs only)