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Info about guarenteed capital bonds?

Ok i dont really know much about them except they take your savings, use it however they like and then after the fixed term they give you your savings back with a agreed percentage earned. Is this true?

can anyone else help me with what these involve?

i know of some people who have invested in this saving method and but its still within their term so they cant withdraw their deposit. its guarenteed so you cant lose your money right?
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  • dunstonh
    dunstonh Posts: 118,615 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    Ok i dont really know much about them except they take your savings, use it however they like and then after the fixed term they give you your savings back with a agreed percentage earned. Is this true?

    What you describe there is a almost a fixed term deposit. (often misnamed as bonds by the banks).

    Yet what you infer could also be a guaranteed equity bond potentially or even an investment bond in a guaranteed fund.

    Which is it that you are looking at?
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • focus888
    focus888 Posts: 1,483 Forumite
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    They call it guaranteed capital bonds and they didnt go into detail about what happens to the money only that after several years (6) they will gain a minimum of 20% interest. But could be more depending on the market.

    Now ive been trying to read up about them but they never clearly say if there is a risk to the original funds or not? i understand if you try and take the money out before the full term then you probably wont get all your money back but if you leave it in for the full term then does that mean there is no risk at all to your capital?
  • Baldur
    Baldur Posts: 6,565 Forumite
    Which institution is offering the one that you are asking about? A quick Google brings up Britannia, Nationwide, Legal & General, LV (Liverpool Victoria) among others, just on the first page - without knowing the provider & product, it's impossible to advise you.

    Didn't find 'They' offering one......... ;)
  • dunstonh
    dunstonh Posts: 118,615 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    They call it guaranteed capital bonds and they didnt go into detail about what happens to the money only that after several years (6) they will gain a minimum of 20% interest.

    Stilll a bit vague I'm afraid. The mention of interest suggests fixed term deposit but the title "guaranteed capital bond" suggests an investment rather than savings and the investments do pay interest.
    But could be more depending on the market.

    That almost certainly means no interest and it is a guaranteed equity bond.

    If it is a guaranteed equity bond then you should avoid the ones offered by banks and building societies. The terms are poor compared to whole of market options. There are also risks on the financial solvency of the underwriter. Some are not protected by the FSCS although some are. Also, some have specific terms which may not be likely to occur but could potentially and you have to make a judgement call.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • focus888
    focus888 Posts: 1,483 Forumite
    Part of the Furniture 1,000 Posts
    dunstonh wrote: »
    That almost certainly means no interest and it is a guaranteed equity bond.

    If it is a guaranteed equity bond then you should avoid the ones offered by banks and building societies. The terms are poor compared to whole of market options. There are also risks on the financial solvency of the underwriter. Some are not protected by the FSCS although some are. Also, some have specific terms which may not be likely to occur but could potentially and you have to make a judgement call.

    Sorry could you explain it a bit more simpler :o is it just the interest that is affected by the market and not the original funds? I just want to know how safe the investment is now? I mean guaranteed is there for a purpose right :confused:
  • julieq
    julieq Posts: 2,603 Forumite
    Given your sig, it's likely that this isn't the product for you. I'd have a look at regular saver accounts, you can get decent rates of return for regular payments and it'll get you into the habit of saving, at the end of the term transfer the money to an instant access cash ISA.

    Ideally you need about 3 months net income in an instant access savings account before going off on investment led savings, and you need to learn a little bit about how the products work.
  • focus888
    focus888 Posts: 1,483 Forumite
    Part of the Furniture 1,000 Posts
    Hi Julie, thanks for your help and you are right its not the right thing for me but im asking for my friends. I just want to know if their original money is safe if they leave it for the whole term. But no matter how i try to find out more about it it gets more complicated because there always seems to be a but and then it goes all into the financial phrasing which totally confuses me. :(
  • dunstonh
    dunstonh Posts: 118,615 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    Guaranteed equity bonds typically fall under the insurance FSCS protection (for those in the life funds tax wrapper) or investments FSCS protection (for those in ISA or unwrapped unit trust or similar form). Dont worry too much about that because life insurance FSCS protection is higher than savings as there is no cap. Investments are 48k so not much different there either.

    However, the FSCS protection applies not to the retailer or even the packager but to the company that underwrites the product. Last year a few GEBs failed and people have lost every penny because the underwriter was Lehmanns. This is despite the retailers and the packagers being FSA authorised and offering FSCS protection themselves.

    GEBs do not usually pay interest. They may pay a rate of return but its not usually interest. That rate of return may either be treated as a capital gain or as an income payment depending on the type of GEB. As you havent named the product provider we cant say. Hence why we are giving lots of vague responses you dont follow.

    GEBs when in force tend to have a variable value in the interim. However, on maturity, that is when the guaranteed bit kicks in. Some GEBs are not accessible at all whilst others do allow it but at penalty and with loss potential depending on the index being tracked.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • focus888
    focus888 Posts: 1,483 Forumite
    Part of the Furniture 1,000 Posts
    dunstonh wrote: »
    As you havent named the product provider we cant say. Hence why we are giving lots of vague responses you dont follow.

    It is with Natwest. I've tried looking on the website for details but they dont seem to offer this no more. Sorry im just very new to all this. :o
  • guli
    guli Posts: 198 Forumite
    Part of the Furniture 100 Posts Photogenic Name Dropper
    dunstonh wrote: »
    Guaranteed equity bonds typically fall under the insurance FSCS protection (for those in the life funds tax wrapper) or investments FSCS protection (for those in ISA or unwrapped unit trust or similar form). Dont worry too much about that because life insurance FSCS protection is higher than savings as there is no cap. Investments are 48k so not much different there either.

    However, the FSCS protection applies not to the retailer or even the packager but to the company that underwrites the product. Last year a few GEBs failed and people have lost every penny because the underwriter was Lehmanns. This is despite the retailers and the packagers being FSA authorised and offering FSCS protection themselves.

    GEBs do not usually pay interest. They may pay a rate of return but its not usually interest. That rate of return may either be treated as a capital gain or as an income payment depending on the type of GEB. As you havent named the product provider we cant say. Hence why we are giving lots of vague responses you dont follow.

    GEBs when in force tend to have a variable value in the interim. However, on maturity, that is when the guaranteed bit kicks in. Some GEBs are not accessible at all whilst others do allow it but at penalty and with loss potential depending on the index being tracked.

    Dunstonh,

    See, the Premier Asset Management's GEB, is the rate of return treated as capital gain or as income payment?

    Thanks
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