Be careful of structured financial products

When you put your savings in a one year fixed deposit with a good quality bank, you get an interest rate less than 1 percent per annum. If your bank offers a promotion for new deposits, you may be able to get a higher interest rate of say 1.5% per annum.

If a good quality bank offer you a higher interest rate of say 3% per annum, you have to study it carefully. Here are some possible reasons why they pay a higher interest rate:


a) You have to lock up your deposit for a longer period, maybe 3 to 5 years.

b) It may comprise of a guaranteed component that is slightly lower than 1% and the additional payout is subject to conditions.

c) Your principal may not be guaranteed at all. These products are described as "investments" rather than "deposits".

These structured products are usually quite complicated. Most retail investors will ask the marketing person to explain the product. This should be avoided, for the following reasons:

1) The marketing person has to meet a sales quota, so they will present the positive features to get you to buy, and may not tell you the negative features.

2) Often, the marketing person is not aware about the negative features, as their trainer hide these negative facts from them. 

It is best that you read the product brochure carefully, and if it looks unclear, avoid the product. Or get independent advice - and pay separately for the advice.

Many people have lost their life savings buying bad products that they were not aware of. The marketing person who sold the products to them, may be their family or friend, and they are also not aware of the negative aspects.