Guide to Essential Money Tools

Savings Tools

How to guarantee returns

nnovative deposit accounts offer savers good returns whilst guaranteeing capital protection.

Guaranteed (capital protected) bonds are known in the market as ‘structured’ investments.

The most salient feature of these bonds is the promise from the provider that investors will not lose any of their initial investment sum. What’s more, money invested in these bonds stands a chance of making impressive capital gains relative to the returns of stock market or baskets of stock market indices.
There have been a large number of these bonds issued by offshore banks and building societies based in the Isle of Man, Jersey and Guernsey over the last decade and their popularity with savers shows no sign of abating.  There are, however, a couple of important features to consider before investing. The first is the bond’s term. This will usually be between three and seven years. Investors must feel confident that they can tie up their investment sum for the duration, because pulling out early can be costly.

Investors must also consider what they may be foregoing by tying up their capital over the longer term. While you may be guaranteed your money back if all else fails, is the potential return offered significantly better than the interest rate which could be earned over the same period in a high-interest paying savings account?

Another important consideration is the allotted Index to which the bond’s fortune has been linked. Whilst many are linked to the FTSE 100, there are a variety of other options including baskets of the world’s biggest companies and property prices. Some advisers recommend linking only to a large index rather than a basket of shares, because in a smaller basket, the worst performer could well determine the overall return. The FTSE 100 is deemed the least risky for sterling investors because this Index is largely defensive, with heavy weightings in financials and oil.