Royal Bank of Scotland International is launching a capital guaranteed bond that will require client...
Royal Bank of Scotland International is launching a capital guaranteed bond that will require clients to lock-in capital for a period of two years.
With a minimum deposit of £5,000, the bond is aimed at expatriates and foreign national in the UK and worldwide. Investors will have the opportunity to earn up to 14% interest.
'Interest rates have fallen dramatically so the most you can earn is 2.5% if you invest in a bank or building society,' said Peter Shirreffs, director of retail banking at Royal Bank of Scotland International. 'Hence a bond that pays 14% after only two years is an attractive product for clients.'
The level of return depends on the performance of the FTSE 100. The bond will earn interest of 7% per annum for each day that the FTSE 100 remains between -3% and 10% of its value when the product starts.
In the case where the FTSE falls either below -3% or rises above 10% of that starting amount, then no interest will be received for that day.
The starting level of the FTSE 100 will be determined at the end of trading on 25 January 2002.
At the end of the first year, the trading level is set to a new start level, reducing the risk that investors will be disadvantaged if the index moves substantially in one direction through the first year.
'If the trading range was not calibrated then investors might lose out, so it is a big advantage that after the first year a new trading range is set,' claimed Shirreffs.
Shirreffs added: 'The UK stock market will improve, but is likely to remain fairly static. We have anticipated the market to move by around 5%-6% in the first year, a relatively conservative improvement. The readjustment of the stock market will be slow and by the end of these two years will possibly increase by 20%. We have anticipated such movements in the stock market while designing the bond.'
Shirreffs explains that in the current market climate, customers want shorter-term products in order to cope with volatility.
He says: 'Demand from customers is for a shorter-term product. In volatile markets, investors do not want to lock their money for too long because it is difficult to predict returns for five years and they want to be able to turn around quickly if the market changes.'
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