Halifax Gauranteed Growth Bond

This looks suspiciously similar, but not identical, to a Guaranteed Equity Bond. (See here for why GEB's are bad.)

Am considering putting ~£10k into it, but it seems a bit good to be true, is there any catch I'm not aware of?

The catch is the hidden fee - the 'interest rate' for the product should be higher given what they're doing with your money.

Does anyone know what will happen to the money after the first year? Will it stay in the account and not accumulate any money or will it be transferred straight into my Halifax savings account?

It's mentioned on their site : What happens when my Guaranteed Growth Bond matures?

Halifax wrote:

Approximately 6 weeks before your Guaranteed Growth Bond matures we will write to you to tell you about the re-investment choices that are available to you so you'll have plenty of time to decide how to make the most of your money. As soon as reasonably possible after the bond has ended we will pay you the amount of your original investment, together with any Early Investment Payment, increased by the fixed return.

>> The catch is the hidden fee - the 'interest rate' for the product should be higher given what they're doing with your money.

It's like a swap. The loss in growth is compensated by the lower risk. It's not a catch it's just a decision about what you thnk is going to happen to markets.

equi

blizeH wrote: »

Hmm, I'm a little bit confused by this, sorry for asking a silly question guys,

It's not a silly question - we're just looking at this from a slightly different perspective - we know (or at least suspect) what the banks are doing with your money to get the guarantee.

but since it says it's a Gaurenteed Growth Bond, does that not mean there's a 100% chance this time next year I'll have an extra 5.08% on my initial investment?

Yes - that's what it means.

I already have a Cash ISA maxed out for this year so I just thought 5.08% would be about as high as I could possibly get after tax.

There are other tax-free options that you may be unaware of.

http://www.nsandi.com/products/ilsc/index.jsp - Indexed linked savings certificates - currently up to 6.15% tax free (equivilant to 7.68% for basic rate payers - compared to 5.08% to your bond) - can invest up to £15,000 over 3 or 5 years.

http://www.nsandi.com/products/fisc/index.jsp - Fixed iterest savings certificates (not as comparable sadly.)

And there's premium bonds, which are more of a gamble, but are OK as a part of a portfolio, but not as the only way of saving. More favourable if you're a higher rate tax payer however.

Have you considered investment (as opposed to saving in cash)?

blizeH wrote: »

That first NS&I link looks good, but it says up to 6.15%, does that mean there's a good chance I might get 0% interest return?

No. There's the vague (if somewhat improbable) chance that you may get no return, but that would mean that the country is in recession

To reply to what you're trying to ask - no. The way the first product linked (Indexed linked savings certificates) works is, they look at the Retail Price Index (RPI - currently 4.80%) and add a fixed percentage of 1.35% (for the current issue) during the term.

This means, that regardless of what happens to the RPI, your deposit will always increase 1.35% more.

The catch, however, is that if the RPI changes during the 3 or 5 year period, so does your interest rate. If the RPI goes up to 5.00%, you'll get 6.35%. If the RPI goes down to 4.00%, you'll get 5.35%. In addition, if you cash in early, you won't get the full benifit either.

The other potential 'catch' is how well you beleive the RPI reflects inflation as it applies/means to you.

All returns are tax free.

I know a little bit about this, apparently the advisers investing money in this dont earn (or earn a lot less) commision on it. Its a hook to get customers in so they can try and get money invested in other products. The other products have the potential to earn much more interest but the risk is higher, just stick to your guns, if its what you want then make sure thats where your money goes.