We don't want excitement, just guarantees

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The Independent Online

Promises, promises... Investors can barely move for "guaranteed" products at the moment as banks, building societies and other providers pump out a stream of copper-bottomed offers that pledge to preserve your cash while serving up a slice of any gain linked to a stock market or hedge fund index.

West Bromwich building society threw two new guaranteed products into the mix last week: a "bonus" tracker bond and capital account. Each will return your money after five and a half years but the rewards are different. The tracker bond pays the bigger of 25 per cent of your original investment or the cash equivalent of 60 per cent of the FTSE 100's growth (worked out on average).

In contrast, the capital version offers all of any index growth up to a cut-off point: if the index has soared by 35 per cent by the third anniversary of your investment, your account will be closed and you will have to take the money. If it sounds complicated, that's because it is.

To guarantee you get your money back, firms rely on a largely hidden universe of complex financial products, such as options and derivatives, to be able to hedge financial outcomes.

Andy Heseltine of West Brom- wich says customers rarely ask how the products work: "They're not really interested in that - more in their capital being safe."

This sentiment has helped "guarantee" to become a magic word that sells products at a time of woeful investor confidence, says Colin Jackson of independent financial adviser (IFA) Baronworth. "We've seen lots of disillusioned with-profits bond investors switching to guaranteed income bonds."

The popularity of guaranteed products has grown as savers turn away from regular stock market investments and into what Ryan Parry of IFA Chartwell calls "controlled" stock market investment. "If you are thinking about investing in a unit trust tracker with the risk of your money shrinking with a falling market, a guaranteed product will protect you."

However, there is a price to pay: the returns are rarely spectacular and you won't be able to pull your money out once it's been invested. That said, the view of Mr Heseltine at West Bromwich is that many investors will appreciate a 25 per cent return over five and a half years. "It's not exciting but it is guaranteed."

The same offer's tantalising alternative of 60 per cent of any index growth, if higher, would need the FTSE 100 to rise by half its current value to beat the guarantee - a huge leap.

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