Why you should avoid guaranteed equity bonds

With guaranteed equity bonds flying off the shelves at moment, should you join the rush? Tim Bennett doesn't think so…

When a product offers 125% of the growth in the FTSE 100 on a £1,000 investment over five years or your money back, my immediate reaction is that it all sounds rather complicated and if it looks too good to be true, there must be a catch. This is the deal offered to investors in the National Savings Bank's guaranteed equity bond (GEB) and it's just one example of a type of product that is flying off the shelves at the moment. But should you join the rush?

There is certainly no lack of choice for GEB enthusiasts just recently Saga joined a growing list of issuers that includes most of the banks and building societies, and even Tesco Finance. So let's take £1,000 and look at why buying a guaranteed equity bond is not as clever as the issuers would have you believe.

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Tim graduated with a history degree from Cambridge University in 1989 and, after a year of travelling, joined the financial services firm Ernst and Young in 1990, qualifying as a chartered accountant in 1994.

He then moved into financial markets training, designing and running a variety of courses at graduate level and beyond for a range of organisations including the Securities and Investment Institute and UBS. He joined MoneyWeek in 2007.