Savings accounts may have lost their charm, so try the insurers

With savings rates from building societies having fallen through the floor since their peak of 14 per cent in 1990, savers have been forced to look elsewhere for a good level of income or growth.

But many investors are still nervous of the higher returns but greater volatility provided via the stock market, and so "guaranteed" products have attracted a major new class of middle-ground investors.

Insurance companies have been offering products which guarantee a level of capital security and better returns than traditional deposit accounts for many years.

These have traditionally taken the form of guaranteed income bonds or guaranteed growth bonds. They are single-premium life assurance policies which offer either a relatively high fixed income on a regular basis or reinvest the income to provide capital growth over a fixed term ranging from one to five years.

Amanda Webster, director of marketing and development at Save & Prosper, commented: "Those seeking guaranteed income are typically pre-retired and basic rate tax payers while those looking for growth are more likely to be younger and higher rate taxpayers.

"Both groups are currently risk-averse, possibly as a result of a bad investment experience, fear of job loss and the general feel-bad factor".

Returns on guaranteed bonds improve the longer investors are willing to tie their cash up for and compare well against deals on offer from banks and building societies.

GAN Life is currently offering monthly income of 3.54 per cent for investments between pounds 3,000 and pounds 4,999 tied up for one year, rising to 4.47 per cent a month on investments tied up for five years, while AIG Life is offering monthly income on a one-year bond ranging from 4.43 per cent on an investment of pounds 5,000 to 4.76 per cent on investments over pounds 50,000. Over five years, the rates range from 4.47 per cent to 5.55 per cent. Reliance Mutual is presently offering growth of 29.15 per cent fixed over five years for investments of pounds 5,000, rising to 22.25 per cent over five years for investments of pounds 20,000, while Pinnacle Insurance is offering a fixed return of 35.09 per cent on an investment of pounds 3,000 over five years.

Bonds linked to the performance of specific stock market indices have become increasingly popular, particularly with the more financially sophisticated investor, although there is a risk to either your capital or your income.

The Manor Park Guaranteed Income Fund (series 1) pays an income of 8 per cent guaranteed for five years plus the return of 100 per cent of the initial investment provided the FT-SE 100 index grows by an average of 1.3 per cent a year.

Alan Williams, director of Manor Park, says: "Demand from investors for income generating products continues to be strong, particularly with interest rates on cash deposits at low levels. Many investors remain suspicious of investments linked to the perfomance of the stock market as they are fearful of losing money.

"But it only requires the market to rise by historically modest proportions for the investor to enjoy both income and the return of the original capital."

Stock market-linked high-income bonds are also on offer from Eurolife - which is offering income of 10 per cent a year or growth of 60 per cent over five years and Save & Prosper, which is offering an annual income of 10 per cent net for five years, quarterly income of 2.4 per cent net for five years or accumulated income of 65 per cent net after five and a half years.

Save & Prosper is currently offering a Japanese guaranteed stock market bond. Providing 120 per cent of the average growth of the Japanese market which is widely expected to rise in 1996 - over 3.5 years with a minimum capital retum of 100 per cent.