Guaranteed Equity Bond 110% FTSE @ Post Office

dealseeker

New 2nd Issue just launched.

Limited issue - Closes 4th April or sooner if oversubscribed.

Martin's previous article - http://www.moneysavingexpert.com/cgi-bin/viewnews.cgi?newsid1081137796,10029

Link to Post office site - http://www.postoffice.co.uk/portal/po/content2?catId=14500200&mediaId=14500201

Enjoy gains with no risk of loss .... Worst case - just get your money back at end of term.

Main detail from the site :
Your step by step guide to Guaranteed Equity Bonds

• You choose the amount you wish to invest – from £500 and £1,000,000
• You also choose the length of the investment, either three or five years
• The Three Year Bond gives you 75% of any growth in the FTSE 100 Index, adjusted by an averaging method
• The Five Year Bond gives you 110% of any growth in the FTSE 100 Index, adjusted by an averaging method
• The Guaranteed Equity Bonds are a limited offer product, which means the closing date for investment in this issue is 4th April 2005 – or sooner if they become fully subscribed
• The Post Office™ Guaranteed Equity Bond is a fixed term deposit account which is linked to a percentage of the performance of the FTSE 100 Index, adjusted by an averaging method
• From the day your funds clear until the date the Bond opens, your investment will earn a 4.5% Gross* / AER† fixed rate (this interest is added onto the original amount of cash invested in your Guaranteed Equity Bond)
• On 22nd April 2005 the first FTSE 100 Index reading is taken. This is Index Level 1
• The second reading (or Index Level 2) is created by taking the average of several readings over the last months of your Bond’s investment period. With the Three Year Bond, we take an average of seven readings taken over the last six months of the investment. For the Five Year Bond, we take the average made of 13 readings taken over the last 12 months of the Bond's Fixed Term
• The percentage of growth between Index Level 1 and Index Level 2 is used to calculate your Bond’s earnings. You will receive 75% or 110% of any growth depending on the term of your Bond
• Even if the FTSE 100 Index falls over the period, you’ll still get back every penny of the amount you originally invested – plus the interest it earned during the offer period. Please bear in mind that its value could be eroded by the effects of inflation

How to tell if a Guaranteed Equity Bond from the Post Office™ is right for you



The Post Office™ Guaranteed Equity Bond won’t suit everyone. So, before you invest, we’ve pointed out a few things you should consider before applying.

Yes, it could be right for me because I:

• want to share in any FTSE 100 growth over 3 or 5 years
• am looking for stock market linked growth potential
• want to know that my original investment is secure
• have a minimum lump sum of £500 to invest
• won’t need to touch my investment for 3 to 5 years (remember, you may need some spare cash for emergencies).

No, it probably isn’t right for me because I:

• like to top up my savings regularly
• want regular income from my money
• may need to get to my money during the 3 or 5 year period
• haven’t any spare cash for unexpected emergencies
• want a guaranteed rate of return

Have a look at the returns you could enjoy

The following tables are a guide only for the type of return you could receive at maturity with a Post Office™ Guaranteed Equity Bond

http://www.postoffice.co.uk/portal/po/content2?catId=14500200&mediaId=14500202

deemy2004

The price you pay for the capital protection is loss of income from dividends which at say 4% amounts to 12-15% on the 3 year and 10-15% on the 5 year (adjusted for the 110% gain).

Still it is far superior to the precipice junk that used to be sold by IFA's such as Aaron partnership.

The 5 year term definetly looks the better deal ! and the one to go for IF you want to invest in this bond.

lipidicman

I used to think these were great deal, now one has come around I know more of the disadvantages. Oh well, knowledge is power......still tempted though. The other idea is a tracker - but here you dont get the dividends.

So, why shouldnt I go for this, over a tracker?

Also, is this different from the ns&i GEB (nothing on their website)?

dealseeker

A few additional thoughts

Administration charges
One thing is certain - if you go for a managed fund and even a tracker there will be administration and dealing charges never mind the risk that the funds going down in value.

There may effectively be a charge associated with the capital protection in the Post Office product but this is not obvious here.

5 year term
5 year term does look best and to be fair when you invest in stockmarket related products you should be looking at a 5 year term minimum anyway so it is a reasonable comparison.

With trackers you could cash in early but with this product you need to leave your cash tied up for 5 years with NO access.

Income Tax
All interest is liable to UK income tax, at the rates that apply to savings in the tax year 2008/09 for the 3 year Bond and 2010/11 for the five year Bond.

So you can't use your capital gains tax allowance or take advantage of the timing of when you wish to surrender your investment from a tax planning point of view.


As ever investment decision is up to the individual and their tax position and view of risk and requirement to have access to cash during the term....

deemy2004

dealseeker wrote:

A few additional thoughts

Income Tax
All interest is liable to UK income tax, at the rates that apply to savings in the tax year 2008/09 for the 3 year Bond and 2010/11 for the five year Bond.

So you can't use your capital gains tax allowance or take advantage of the timing of when you wish to surrender your investment from a tax planning point of view.
term....

Offcourse !

Thats the crunch factor ...... So really its 88% growth of the FTSE over 5 years (taking off 20% for the tax man).
now the gain does not look so good, especially if your a higher rate tax payer as all the interest will fall due in ONE tax year !

A self selected portfolio would yeild about 4% per year and taking performance in line with the FTSE would beat the bond hands down.. Now that makes this a little more expensive deal.

lipidicman

I always forget the income tax thing on these bonds - it really is the killer blow!

Galstonian

deemy2004 wrote:

A self selected portfolio would yeild about 4%

Would or could?

LIAMJACK

Guaranteed Capital Equity Bonds, are a good thing if you would like to have a go at checking out the FTSE 100 without actually loseing any money. Britannia Building Society are currently offering a 50/50 bond which pays you 7.5% gross for half of the investment, for one year fixed, and the other half is a GCEB for 5 years. At the end of the five years you get 50% of the growth of the FTSE100 if it does not grow you get your capital. The first year fixed rate does it for me!

lipidicman

LIAMJACK wrote:

Guaranteed Capital Equity Bonds, are a good thing if you would like to have a go at checking out the FTSE 100 without actually loseing any money.

But you will have lost money if you dont get around a 30% return (which is 5.35% compounded for 5 years) that you could get in an instant access account

Even forgetting interest, inflation will erode your capital. SO YOU CAN LOSE MONEY ON THESE!

If you think the FTSE will fall, a GEB is rubbish just like a tracker

The guarantee doesnt seem to outweight the disadvantages discussed above

lipidicman

LIAMJACK wrote:

Britannia Building Society are currently offering a 50/50 bond which pays you 7.5% gross for half of the investment, for one year fixed, and the other half is a GCEB for 5 years. At the end of the five years you get 50% of the growth of the FTSE100 if it does not grow you get your capital. The first year fixed rate does it for me!

But the 7.5% doesnt really make up for the fact that this offers only 50% of the growth of the FTSE100! So the FTSE must rise by 60% to make even - I dont htink we are in that sort of market. The post office offer 110% of the growth of the FTSE100!

You must think the FTSE will rise, so why not go with the PO account and take up a regular saver at 7% from the halifax (ok not a lump sum but a good rate)

I also note that both products use an average level of the FTSE, making any last minute rises less valuable. And as pointed out you cant make a judgement as to when to get out. The killer blow is that its taxed like income, when as I have pointed out - you are taking a risk with your capital. Usually when you do this you pay CGT and for me that would come free of tax as I dont expect to make enough. To pay income tax would make me feel sick. You either lose money, or lose anything you make to the tax man