Safety net saving

By SYLVIA MORRIS, THIS IS MONEY AND DAILY MAIL SAVINGS EXPERT
Updated: 19:00 EST, 28 March 2003

MARKETING men have been busy concocting schemes linked to shares that will sell in a bear market.

The result is a rush of so- called Protected Equity Bonds, which invest in shares. As long as you stick with it for a fixed period - typically around five years - you will get your capital back in full, plus a share of any rise in the stock market.

These bonds can be wrapped in an Isa to avoid paying tax on the income and growth. It means you can use your £3,000 mini stocks and shares Isa or your £7,000 maxi Isa allowance for this tax year without taking a risk with your capital.

How much profit you make will depend on what happens to share prices. You must stick out the original investment term to get your capital back. If you cash the bond in before then, you could get back less than you put in. You could also lose out if the company issuing the bond goes bust.

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It guaranteed her original investment, plus a percentage growth in the FTSE 100 index.

But when the bond matured last November, all she saw was her original capital back - though she didn't lose money either. Over the five years, the index had fallen from 4991 to 4185. Anita, from St Helens, Merseyside, who is married to training co-ordinator John, says: 'I could have put my money into a savings account and done better. I did not expect to get nothing.'

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The schemes are complicated and have varying terms and conditions. Legal & General's Index Growth and Protection Plan will give 70% of any rise in FTSE 100. Its Protected Index Plan 2, minimum investment £1,000, pays you all the growth in the FTSE 100 index, which measures the shares prices of the UK's largest companies over five and a half years. But the most you can earn is 55% on your money. Which plan is better depends on the FTSE 100. If it goes up by less than 78.6%, you will be better off with Protected Index Plan 2.

Britannia Secure Growth Isa operates for five-and-a-half years with a maximum 66% return on your money and a minimum 7.5% over the term, depending on the performance of the FTSE 100. Minimum investment is £3,000 into a mini stocks and shares Isa, or £7,000 in a maxi.

Abbey National's Safety Plus Growth five-and-a-half-year version pledges your capital plus a minimum 17.5%, but the maximum is capped at 45.1%. On the three-year version, the figures are 7.5% and 19.5%.

HSBC Capital Protected Isa has a six-year term and gives all the FTSE 100 growth. But if the index is up by 21% or more by the third anniversary, then the bond ends and you get your money back plus 21%.

Protected Newton Higher Income Plan from Mellon Global Investments works differently. It links your investment, minimum £5,000, to the Newton Higher Income Fund.

There is a 5% initial charge and the managers take capital protection fees, too, but the cost will depend on how the fund is performing.

Brian Dennehy, from independent financial adviser Dennehy Weller, says: 'The Newton Higher Income plan is linked to a fund we like, which has a strong performance and an excellent fund manager.'