Lloyds Bank is paying out £40m in compensation to more than 7,000 customers who were sold complex investments between 2008 and 2014.
The bank told Which? Money that it is in the process of contacting the 7,250 customers who were sold ‘structured products’ – investments designed to pay you a return based on the performance of the stock market without physically buying shares.
Investors bought the products through either Lloyds TSB (as it was named at the time) or Scottish Widows. Customers affected were sold products called the Acorn Market Linked Deposit or Protected Capital Solutions Fund. Lloyds told Which that customers invested in 12 of these products are affected and will be compensated.
Which? has been highly critical of so-called structured deposits. In 2014, the Financial Conduct Authority fined Yorkshire Building Society and Credit Suisse a total of £3.8m for a ‘misleading’ promotion of structured products to risk-averse customers – after Which? alerted the regulator in 2010.
And in 2015, Royal Bank of Scotland paid out £70m to 24,000 customers who were sold structured products.
What is a structured deposit?
Billed as low-risk investments, structured deposits aim to pay a return similar to the stock market without actually investing your money.
Your savings are put into a deposit account, like a savings account, but the rate of interest you earn is calculated by looking at how a stock market index – often the FTSE 100 – has performed.
If level of the market is higher after four or five years, depending on the product, you earn interest capped at a certain amount. If it goes down, you get your original investment back.
Which? believes that these are a poor halfway-house between saving and investing. As you’re not directly invested in the stock market, you won’t receive any dividends, as you would with owning shares or funds.
And growth in a structured deposit is capped – one of the Lloyds products we looked at caps growth in the level of the index at 16% and then multiplied it by two to calculate the return on the investment. We believe the complexity of these products make them unsuitable for ordinary savers.
When will investors receive their money?
Lloyds has contacted 1,500 customers so far, which will continue over the next few weeks, informing them that are due to be refunded and paid compensation.
The bank told Which? Money customers would automatically be refunded, without customers needing to make an active claim.