A friend told me this story. She invested $25,000 in a "vitamin account" offered by a bank. The account paid 4% interest. After one year, the value of the account plus the interest paid is still LESS than the principal invested. There was no gain for the past one year.
She also invested in the Combined Fund managed by NTUC Income. It produced a return of about 10% during the same period.
She asked the bank why the return was still negative. The bank officer advised her to wait longer.
My friend now realised that the bank had high charges in the "vitamin account". Her money is locked up for 6 years. She does not know when she is going to get a decent return.
It is an expensive lesson for her.
Most structured deposits being marketed by the banks are similar to this product, namely:
- high charges (not disclosed)
- a complicated formula on calcuting the value of the investments
- a locked-in period
I wish to advise all consumers. Do not invest in the structured products. They are to your disadvantahe.
Invest your money in a large, well diversified fund, with low charges (less than 1% per annum). You will benefit in the long term.
But the free DVD was definitely worth it right? :)
ReplyDeleteHi Mr Tan,
ReplyDeleteI wish to say that my parents too have very bad experiences with structure deposits.
When I reviewed these prospectus, I was apalled by the complex formulas invovlved in calculating the returns. Many of which puts the investors in very unfavourable positions.
When I question the bank officers about it, I was further taken aback by their nonchalent attitudes. I start to wonder how they sleep at night? Especially those who designed such products and those who blatently hard-sell it to many non-financial savvy mums and dads. I also find the discretional withholding of important information by the financial advisors to be extremely shameful.
Mr Tan, thank you for bringing awareness and educating the public on such issues.
Magdeline Teo