Guaranteed stock market bonds are structured investment products, aimed at providing capital growth and/or income, while offering full or partial protection of the original investment.
This protection is normally achieved by keeping most of your investment in 'safe haven' funds, such as deposit accounts, UK government stock - also called gilts - or corporate bonds (issued by companies to raise business expansion capital). A small percentage will be invested in riskier investments in the hope of capital growth. Most guaranteed bonds tie up your cash for five years or more. You lose the bond's guarantee of receiving back your original investment if you withdraw funds early.
Despite providers advertising them as 'no risk', they have numerous drawbacks.
If the provider goes bust you will have to seek compensation from the Financial Services Compensation Scheme.
There are the substantial penalties for early surrender and a lack of transparency as these bonds become more complex. Dividends your money earns are not added or reinvested so growth is often capped.
If the credit crunch lasts less than five years (which is likely), putting half your money in a good savings account and half in a shares-based individual savings account (ISA), may provide a much better return than possibly zero growth from a guaranteed bond.
Remember though that investments in shares can fall and the income is not guaranteed.