Beware of complex structured products

Structured products are complex savings plans that are set for a fixed term and frequently have a return linked to the performance of one or more stock markets or indices, such as the FTSE 100.

Banks and building societies sold these products in the past and many still offer these types of saving products despite the warning that many savers do not understand these complex savings vehicles, the potential risks they are taking and the charges involved.

Plans that mature may only pay back the capital invested and it may be that the returns will be less than those that could have been achieved in a normal savings account.

These plans are typically targeted to the cautious or elderly investor who is looking for a secure investment with guaranteed returns.

Savers can be attracted by the high returns that appear to be offered without fully understanding the risks involved.

Buyers should proceed with caution if considering this type of investment and ensure they fully understand the contract they are entering into.

It may be that this type of investor would be more suited a well-diversified investment portfolio providing income or capital growth according to their needs.

Whilst the investor should understand the risk involved in the portfolio it could provide a simpler and less costly solution.

It is important to take professional advice before committing to a policy which appears secure, offers high headline rates of return and does not clarify in simple terms the risk involved.

Photo credit: Flickr/Marcelo Tourne