HERE IS AN E-MAIL THAT I RECEIVED RECENTLY
Hi Mr Tan,
I refer to your blog on the above topic.
I believe that the Structured Product that I bought from X Bank was not as good as described to us.
After reading your blog, I decided to come back to see what I have bought. To my horror, the worst case scenario is approximately 1.225% per annum over eight years and 1.58% over ten years.
This is way below the 6.5% per annum a normal investment-link product with NTUC income would be likely to yield.
When the product was introduced to us, the bank officer said that it was very likely for the product to be redeemed early. After 2 years, I really doubt that it will ever happen.
Is there any way out for us? With $20,000 invested, the value is now only $15,810. During the first year, we collected some interest, but I cannot remember the exact amount.
Please should I do? Can CASE help?
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Dear
I will ask an expert to study this product.
I find it difficult to understand the design of most structured products, including this product.
My conclusion is that the financial expert working for the bank is able to design the product to give a good profit margin for the bank. This is usually done at the expense of the customer.
Here are the features of the product:
ReplyDelete- the structured deposit paid interest of 6.25% to 6.75% during the first year.
- in subequent years, it pays an interest rate according to a complicated formula; the interest can be nil
- the bank can redeem the deposit when the total interest payment reaches 9.8% (which can happen during the 10 years)
- the bank pays a bonus of 6% if the deposit is redeemed after 8 years.
- the bank can keep the deposit for up to 10 years and pay a total of only 9.8%.
- if you wish to withdraw, you will get what is the cash value quoted by the bank.
Here is the expert's analysis:
- in the worse case, the return is 0.98 per cent per year (ie 9.8%over 10 years)
- the best case is when tbe bank pays the 6 per cent bonus at the end of year 8; you get a return of 1.975 per cent per year.
If the depositor wish to cash out now, the depositor has to suffer a loss of about 20%.
Why is this deposit structured in this way?
Frankly, I do not know the logic, and whether it is fair to the depositor.
My advice: avoid all types of structured deposit. It is better to take the risk and invest in a fund.