Legal & General has launched a new growth deposit bond, which it believes will appeal to investors managing savings in an environment of high inflation and low interest rates.
The structured deposit called Six Year Deposit Bond 21 which is currently opened for investment will close on 9 August.
L&G said the bond, which is linked to the FTSE 100 index, would be a good fit for investors who want good returns but because of recent volatility in the equity market do not feel comfortable investing directly in stocks and shares.
The minimum return on the bond, which is return of capital, remains unchanged from the previous issue. The participation rate offers savers a potential return of 125 per cent of the growth in the FTSE 100 index up to a maximum value of 35 per cent gross of the original investment. If investors take out some or all of their money before the end of the fixed term they may get back less than they invest.
The deposit taker is Cater Allen. While the bond is designed to return the customer’s original capital at the end of the six-year term, L&G said some or all of the capital may be lost if Cater Allen is unable to repay the provider what they owe. Cater Allen is a member of the Financial Services Compensation Scheme, which covers the first £85,000 each customer holds.
The minimum that can be invested in the bond is £500 and advisers can take 3 per cent commission on the sum invested. It is also available as a deposit plan for individuals, pension trustees, charities and corporate applications.
Investors can also use their cash Isa allowance, where available, and invest up to £5760 for the 2013/14 tax year. There is no maximum for cash Isa transfers, or if investing in a deposit plan. The last date for Isa transfers is 26 July 2013 to allow time for the completion of the transfer before the offer closing date on 9 August.
Charges
There are no explicit charges, but there is a charge of 6.25 per cent to cover the fee to the deposit taker already built into the product.
Provider view
James Harrington, head of structured solutions for Legal & General, said: “We are pleased to be launching another new product in the series. It continues to prove a popular choice with advisers and their clients and is now our longest running structured deposit, having been on sale since this series launched in May 2010. Perhaps given the recent bull run on equities, the growth deposit bond will appeal to cautious investors who would like the opportunity to benefit from further FTSE 100 index growth with the reassurance of the return of their original investment at the end of the six-year term, even if the FTSE 100 index falls.”
Adviser view
Ian Lowes, managing director of Newcastle upon Tyne-based Lowes Financial Management, said: “At the deposit end it is quite simple and straightforward with the Financial Services Compensation Scheme offering protection for deposits up to £85,000, so with no counterparty risk there is no risk of capital loss. This six-year investment will at the very least return investors’ capital at the end of six years.
“Investors need to think about what they would get if this sum was invested in a deposit account for six years. Typically you might get about 2.75 per cent fixed on a five-year deposit. If the investor took no risk and just put money into a five or six year fixed-term deposit, they are likely to end up with about 17.7 per cent. That is what the investor is risking.
“If you are reasonably optimistic you would expect the FTSE 100 index to rise over the next six years, which I would like to think most investment managers are expecting.”
Verdict
This product could generate good returns for investors who do not want to be at the mercy of investing in volatile equity markets.
