(Also known as Share Index+, Guaranteed Equity Bond, Equity Linked Savings Accounts, Guaranteed Equity Savings Bond)
An account which accumulates interest in line with the growth in value of the FT-SE 100 Share Index for 3, or 5 or 6 years. You are guaranteed to get your money back over the period chosen and the schemes may guarantee a minimum interest rate too. If you want your money back early you get less interest but still get all your capital back. The bonds are issued for a limited time and different issues from the same bank or building society will have different guarantees.
One problem with these bonds is the possibility of stock market manipulation by traders on the day your bond matures resulting in a fall in your maturity value. This has nothing to do with the bank or building society but could effect the value of your investments. Nevertheless had you invested in one two or three years ago, you would be very pleased with yourself.
Who can invest Anyone.
How worthwhile Potentially good value if you want to tie your money up for 3 to 6 years. But if the stock market is in the doldrums by the time the bond matures, you get a poor return although no loss of capital; if you stop early you also get a poor return. Higher rate taxpayers consider instead Unit Trust or OEIC Index Tracker. The return counts as taxable interest in the year you cash the bond (your tax rate may be higher or lower in 5 or 6 years time and cashing a large value bond might put you in a higher income tax rate). This type of investment is also available from life insurance companies and less commonly unit trust or OEIC and offshore funds.
Minimum £1,000 to £5,000.
Suitable Lump sums.
Money back After 5 years. Depending on the bank or building society., there may be a chance to get it back early on one or more fixed dates.
Interest Variable. Linked to the rise in the FT-SE 100 Share Index with a quaranteed minimum.
Interest paid Usually after 5 years depending on the bank or building society. Or when you cash, if you cash early.
Tax 20% tax is deducted from the gain which counts as interest in the year when you cash. Non-taxpayers can reclaim tax from the Inland Revenue. Higher rate taxpayers pay extra tax, currently 20%, at the rate for the year in which they cash on the grossed-up value of the gain. Basic taxpayers pay no extra tax. The scheme is inefficient taxwise, because you do not get the capital gains tax free limit or the reduced tax rates available for assets held more than three years.
Fees to pay Usually none but avoid those with a 5% initial charge.
Passbook Statement sent.
Risk 90% compensation scheme on the first £35,000 for each investor for banks and building societies licensed by the Bank of England. There is a risk that overexposure to this sort of investment by a smallish institution combined with a stock market slump could cause it to fail.
How to invest See surveys and adverts in the press. Ask for details and compare the guarantees, charges and terms of different organisations which offer them.
Where from Banks and building sociteies.