Savers - be cautious when investing
Published 22 February 2012 by Lucy Bower
Thisismoney.co.uk reports that many savers were angry when they learned that their low risk 'structured investments' weren't always risk free.
The financial crisis had the unwelcome effect of lessening the value of many people's investments, pensions and savings. There are signs the economy is recovering - Office for National Statistics figures reveal the population's disposable income actually increased by £4 billion between 2010 and late last year. Even so, a second banking crisis could still leave savers out of pocket.
Many savers look for low risk investments to avoid getting their fingers burned. If you had up to £85,000 in your bank account, you might be reassured to know that the investment would be covered by the Financial Services Compensation Scheme (FSCS) if your bank went bust.
However, Thisismoney.co.uk reports that many savers who were looking for low risk investments were angry to learn that their 'structured investments' weren't completely risk free. High street bank 'structured investments' are typically lower risk because of the way the money is invested, but offer returns that track the FTSE 100 at the same time. Around £9.6 billion was invested this way last year, although many customers were unaware there was any risk to their money with these financial products.
Savers are warned that these investments aren't entirely risk-free because the money is sometimes invested in a 'counterparty', or third party - and there is always a risk that a third party could go bust. In that event, your investment wouldn't be covered by the FSCS. However, another structured product called a 'structured deposit' doesn't carry that risk, because even though it is linked to the stock market, the money is held in a deposit account.
A spokesperson for thinkmoney commented: "If you have a significant amount of money that you would like to invest, you need to think carefully about your own attitude to risk. Sometimes there is a greater potential for returns on riskier products, but there are no guarantees and your investment could even devalue in some cases.
"A standard bank account is likely to be covered by the FSCS, but some forms of savings account or investments may not be.
"Before investing any amount of money that you wouldn't be prepared to lose, find out whether your investment would be protected by the FSCS in the event something went wrong. You can find more information about the kind of investments that are protected on the FSCS website."