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Guaranteed Growth Bonds - a cast iron guarantee?

Guaranteed growth bonds need great care. There are two distinct types of guaranteed growth bond, income and growth. Most will tie up your capital for between one and ten years.

An income bond of this type assures the investor that there will be agreed income payments at a set amount during the whole period of the investment, plus a "guarantee" that the capital will remain intact at the end. Similar to other bonds, up to five percent of the initial sum can be taken tax-free. See tax guide for more information.

 

A growth bond investor, on the other hand, receives a "guarantee" that his capital will grow during the investment period, though there is no income option attached to the policy. A lump sum, on top of the original capital originally invested, is hopefully returned to the investor at the end of this policy term. They will sometimes be referred to as high growth bonds or capital growth bonds.

However, it is important to read the small print of both policies. For example, although the word "guarantee" may figure strongly, this could be subject to severe stock market fluctuations. For example, if a fund does not achieve growth targets set in advance, then any guarantee may become worthless. And although the income from a guaranteed growth bond is guaranteed, the return of all the capital may not be.

Like many other investment bond products, any early encashment of the bond can result in severe exit penalties.

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UK Investments - Financial, Property & Other Investments - 1998-2008

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