Complicated stock market investments which promise returns of up to 10.5% are luring cautious savers into gambling £half-a-billion every single month. In the first two months of the year nearly £1.5billion was poured into complex investments, sold by building societies, financial advisers and High Street banks.
The investments, which promise returns that are linked to a rise in the stock market, often have solid-sounding names: Capital Protected Fund, Fixed Term Capital Secure Investment, to name a few.
As cautious savers become disheartened by low interest rates, they are encouraged to put their money into these funds realizing that their capital is not at risk should the stock market fall. Similarly, they will get no return if the investment does not hit its target.
You can even lose money in some cases, and should the bank go bust you risk losing everything as only a few investments are protected by the safety net of the financial services. Already there is £53billion tied up in the so called structured products, however if the industry growth continues an estimated £58billion could be reached.
Justin Modray from CandidMoney, a financial advice website, says that savers need to take extra care that their financial adviser does not persuade them to buy one of the products when they don’t need it. Salesmen can earn £3,000 in commission for each £100,000 investment. City watchdog financial Services Authority last November showed concern at the latest sales boom and said that it could be mis-sold.
Financial advice firms are worried about the popularity of the products, saying it is easy for sales staff to make them look attractive because of the low interest rates. They go on to say they can be risky and it is difficult to get to your money once it has been invested.