Guaranteed Equity Bond @ nationwide

I assume you mean this.

You are basically gambling your interest to get a return of somewhere between 1.90% and capped at 6.99% and tying your money up to do it. They also pay you a pathetic 0.87% until the GEB officially starts on 11th December. As you could get 5% plus all over the place for a 5 year fixed rate account, I can't see the point of this GEB.

Good idea - no.

Safe - yes.

During the fixed term your money is held by Nationwide as the deposit taker. At maturity, Nationwide are contractually bound to return your capital (less any withdrawals and any applicable withdrawal adjustments), plus any returns payable on the product to Legal & General. If Nationwide becomes insolvent, you may be entitled to compensation under the Financial Services Compensation Scheme. Deposit accounts are covered for 100% of the first £50,000 of each customer's claim. Any investment made into the Guaranteed Equity Bond should be taken into account when calculating your total deposit holding with Nationwide.

If the idea does attract you, why not stick 87% of your money in a 5 year account with Barclays or Halifax (5.25%) or Yorkshire Building Society (5.30%) and the other 13% in a tracker stocks and shares ISA with somebody like Legal & General.

At the end of 5 years the savings account with be worth 112% of your original investment and you'll be able to do whatever you want with the value of the stocks and shares ISA at whatever stage you choose.

e.g. £10,000 lump sum. Put £8,700 in to Halifax Web Saver Fixed (5 yr term) and £1,300 in to the L&G tracker. The £8,700 will grow to a guaranteed £11,236 and the £1,300 will do whatever the market allows it to do, with no cap on the amount that you can gain.

Myrmidon_J wrote: »

"The £8,700 will grow to a guaranteed £11,236..." - only if it grows tax-free. What if the OP is a higher rate taxpayer? At a marginal rate of 50.0% (and who knows what income tax might be in a few years), the £8,700 invested returns just £9,903.

In the meantime, although the return on the L&G tracker is "uncapped", returns are available on just 13.0% of the total invested. So, in your example, if the index rises by 75.0% and capital is fully returned (for the sake of argument, £8,700 returns £10,000), your gain would be £2,275 (again, potentially taxable) and your total return £12,275.

However, the GEB (as I understand it) pays 100% of all growth subject to a cap of 50% - so would "participate" in £5,000 worth of growth in the original investment, returning £15,000. Again, subject to tax.

Even with, say, £1,300 in magically tax-free dividend payments (optimistic) over the term, you're still nearly £1,500 short.

I don't think it's quite as simple as you make out, though I agree that this particular product is a poor one!

All more than fair points. Long day yesterday - I shouldn't have tried to get complex!