Structured deposits - money products to avoidSold as low-risk investments but offer poor value

25 January 2012

Inflation linked savings products launched

Structured deposits are not always as safe as they seem

Nobody wants to pay for things they don't need. This applies to financial products just as much as home, technology and kitchen gadgets.

Everyday this week, we'll be analysing the products which we believe offer bad value for consumers, starting with mobile phone insurance, card protection, packaged accounts and, today, structured deposits, This is why we've launched a new campaign to ensure that consumers are protected from poor products in the future.

Structured deposits are too complex

Structured deposits, sometimes called guaranteed savings bonds or protected capital accounts, are a type of investment with an interest rate that's typically linked to the performance of the stock market. As with a savings account, your capital is protected, up to £85,000, under the Financial Services Compensation Scheme (FSCS). 

The difference between savings accounts and structured deposits is that some of your money is used to buy investments – it's their performance that determines how much growth or income you'll receive.

Structured deposits offer poor value

The problem is that if the underlying investments do not perform as expected, you only get back the underlying capital. This can mean that after several years of tying your money up, you may end up with no more than your initial deposit. Once you take inflation into account, this will leave you considerably worse off.

14% of Which? members we asked said they have a structured deposit product, which are often sold as low-risk investments because they claim to offer the return of the capital you originally invested, regardless of the performance of the stock market.

We're worried that banks and building societies sell these complex products without full financial advice, and often fail to make customers aware of associated risks, exit penalties or charges. We're concerned that more banks will sell these products to receive the high, upfront commission available, regardless of whether they're right for customers.

The Which? verdict on structured deposits

Structured deposits can be a poor-value halfway house – some don't offer the interest rate security of cash savings accounts, and those that pay interest pay a minimal amount. Many have opaque charges and unfair exit penalties. We think you should avoid taking out one of these plans without independent financial advice. 

In 2010 we told the Financial Services Authority (FSA) of our concerns. It has issued guidance on how structured products should be designed and sold. But we think it should also insist that if firms recommend such products they can’t receive commission and must offer financial advice and a suitability assessment. It should also act on misleading promotions and unfair exit penalties.

Watchdog not lapdog campaign

We believe that the financial regulator should be responsible for putting a stop to poor-quality financial products, which is why we're launching our new 'Watchdog not Lapdog' campaign.

At the start of next year, the current regulator, the Financial Services Authority (FSA), will split into two new authorities:

  •  The Financial Conduct Authority (FCA), which will have responsibility for protecting consumers
  •  The Prudential Regulation Authority (PRA), which will focus on maintaining financial stability

We want to ensure that the FCA puts consumer protection at the heart of everything it does – and make sure it becomes a watchdog that keeps the financial services industry in check, not a lapdog that panders to it.

More on this...

  • The Which? Money Helpline - we'll help if you have any queries about financial products and services
  • The Watchdog not Lapdog campaign - we explain what our new campaign is trying to achieve
  • Support our campaign - sign up to the Watchdog not Lapdog campaign