Guaranteed Equity Bonds

Category: Investments

What is a Guaranteed Equity Bond?

• A Guaranteed Equity Bond is a method of linking your investment to the stock market but without the risk of losing any money if stock markets go down. They are sometimes referred to as 'Structured Products'.

• Bonds are taken out for a particular length of time, such as 3, 4 or 5 years, during which time withdrawals may or may not be allowed.

• The returns are based on the performance of a defined investment index, such as the FTSE 100 or Nikkei 225. The relevant index is made clear in the advertising for the bond. This is usually a percentage of the growth achieved over the relevant period and is paid in the form on interest. If the index falls during the period, you will receive back your original investment only.

Who Are They Suitable For?

• Guaranteed Equity Bonds are suitable for people who want to have the possibility of growth which is linked to the stock markets but without the risk of losing money.

What Should You Look Out For?

• The price you pay for the guarantee not to lose your money is that you may not benefit from the full amount of any stock market rises in the future. Some bonds do offer a return above the relevant stock market, subject to a cap.

• A bond paying a 20% return over three years (assuming the stock market doesn't fall) is not much more competitive than a deposit paying around 5.5% a year interest, which you would get regardless of stock market performance.

• Guaranteed Equity Bonds are effectively deposit accounts and interest payments are usually paid net of basic rate tax. Higher rate taxpayers are liable for an additional 20% tax on any growth made. Non-taxpayers can arrange for their interest to be paid without the deduction of tax.

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Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.