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January 2013 Which? If you want a degree of pays 3.3%. exposure to stock markets, you could put some of your money into a low-cost tracker fund. While your capital is at risk when investing directly, you can reduce this risk by choosing a fund with a higher proportion www.which.co.uk/modelportfolios for more details, or call the Which? Money Helpline on 01992 822848. If you’re looking for a fixed return on your savings and want to beat the 2.4% on offer from an instant- accessaccount, youcould consider a fixed-rate bond or cash Isa. The rates paid on these accounts have dropped in recent months, so it may be wise tolock your money in for a shorter period than five years. The best three-year fixed-rate deal, for example, of cash- and fixed-interest-based investments. Read ‘The best ways to invest £10,000’ (Which?, September 2012, p62), visit The Santander Stockmarket Linked

to structured structured to schemes deposit Alternatives ow did they perform? H test a selection how structuredTo of if performed have would deposits they’d beenavailable in previous years, analysedwe the performance the of FTSE every 100 day the for past10 five, and 28 years is (which when the FTSE was100 launched), calculating how often the structured depositswould paidhave the minimum and maximum return, and the average return over each period. Savings Bond (Issue offers 26) a maximum return half of the growth an to subject index, 100 FTSE the in Allen, Skipton BS and BS. Yorkshire Some 83%, 77% and 63%, respectively, found either it difficult very or difficult to understand the how product works, difficult it found many as almost while theout to work minimum and maximum possible returns. STRUCTUREDDEPOSITS

ion s structured deposit providers – Cater In fact, if inflationaverages over3% This is the keyproblem with the next sixnext years, the you’ll need almost £12,000 to what buy could you for buy And£10,000 if today. inflation rose significantly over more next the few years, your money would be worth less. a lot lose can’t structuredyou deposits.that Although they may impression the you give theyout, blur the lines between saving the investors giving investing, and impression that they are a risk-free way accessingof the stock market. In reality, they do present a real risk to your and they’re alsomoney, very inflexible. Structured confu Structured Which? experts found structured deposits complicated products to understand, surprise no so it’s that they also baffle potentialinvestors. In October, an showed we online panel 1,321 of three of websites the members Which?

If, however, the stockIf, however, market performs that is remember to thing crucial The Suisse Super Bond Tracker soldby Skipton BS, offering a maximum equivalent years, six over 40% of return a year.to 5.77% The best five-year nearest (the bond savings fixed-rate equivalent time-wise) currently pays Suisse Credit the if so – year a 3.17% bond delivers its maximum return, you’ll considerably do better than wouldyou in done have the . thebadly, structured deposit pays no up weigh to have you So all. at interest an earning of possibility the whether extra 2.6% interest of is worth the risk receive you’d that 3.17% the losing of if simply you your put money in a five-year fixed-ratesavings account. investment initial your all get you if even Once money. lost still have you’ll back, inflation has awayyourat eaten cash, in less much worth be will £10,000 today. is it than time years’ six www.which.co.uk

photographY by: xxxxxx x xxxx www.which.co.uk t a glance Structured deposit schemes aim to offer stock Which? finds they very rarely pay out enough Poor returns could even devalue your capital

interest to beat a Best Rate fixed-rate bond in real terms. Which? calls for regulation. market-linked returns without risk to your capital A

Each structured deposit is different, thinkingIf you’re putting of money Furthermore, the of none products we Rather than offering a set interest rate structured youron money, deposits pay a rateyou return of that is tied to the increase in a particular stock market, such as the FTSE a set 100, over period. They’re offered by a variety providers,of from the Credit Suisse products sold buildingby societies to accounts from and specialist providers, such as Investec and Cater Allen (Santander’s arm). so can it be hard to make like-for-like comparisons. In most cases, if the relevant stock market index rises you’ll earn some all or that of growth. someBut products a cap apply to the while earn, can you return maximum others the pay full growth. Similarly, some offer a you minimumreturn if the underlying index falls, while others but back money your you pay simply a pennynot more. Santander, for example, pays a minimum 2.06% return, Cater but Allen, Investec and deposit initial your return only RBS with interest. no into a structured deposit, either directly decide to need you Isa, cash a within or outweigh benefits potential the whether Credit the example, for Take, risks. the 10 years,10 while Cater would Allen’s have achieved this cases. of in only 1% looked produced at an average annual return above what could you have account savings fixed-rate a in earned theover same period. So while a few the beaten have will investors lucky bank, the vast majority wouldn’t have. what are they?

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stock market? We investigate products that claim to offer a third way Not so simple simple so Not STRUCTUREDDEPOSITS

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We found a similar story with Legal Legal with story similar a found We We looked a range at We recently of Sound too good to be true? That’s That’s That’s idea the behind‘structured Which?

& General and Cater Allen. The L&G product paidwouldn’t have the out maximum return all at past the over marketed FTSE 100-linked savings products, to see they how would have performed the over past10 five and years – and most came woefully up short chart, (see p46). One Santander the out paid have not would account single a on return advertised maximum occasion in the past decade, and would return minimum the out paid just have in cases. of 94% because, in many cases, is. it While these products become have all the rage theover past few years, being sold a by number big-name of banks and building societies as Royal (such Bank Scotlandof and Santander), few them of stood to scrutiny up when our experts themput to the test. deposits’ – often also called stock market-linked savings capital- or protected bonds – that aim to let you yourhave cake and eat it. If the markets invested, is money your while rise typically a fiveor six-year over period, you’ll reap some, all, or the of benefit. lose won’t you fall, markets stock if And any the of investment started you with. return than with a bank. if But can money your evaporates, confidence too. what But if there was a way of getting the benefitsof any stock market gains without being exposed to the losses if things wrong? go 44

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overall cap of 50% over six years, or the past 10 years, and in 90% of periods have been lower than the average slightly better over the past five years. a higher upper ceiling risk giving the expert VIEW 6.99% a year. But our analysis shows during the past five years. return for those investing in the But over the same period you could impression that savers are likely to Better off in savings that this product would never have paid Other products would have paid out Santander product due to the zero have earned more on a fixed-rate receive this rate. However, our testing Martyn Saville | Money expert out the maximum in any period over the maximum more often. For example, return paid if the FTSE 100 falls. five-year bond. While today it is 3.17%, shows that some products would have [email protected] the past five or 10 years. Even if you Investec’s 3-year Deposit Plan 37 would But these are not the lowest-paying in November 2007 was offering paid out the maximum return in less include the performance of the FTSE have paid the maximum 38% of the products. Over the past decade, the 6.2% AER on its five-year bond, than 1% of periods over the past decade. Structured deposits 100 all the way back to April 1984, time over the past decade. However, structured deposits from Royal Bank guaranteed for the full term. deliberately blur the including the stock market boom of the with this product the bar is set lower – of Scotland and Cater Allen would have Fixed end dates Structured deposits lines between early 1990s, you would have had just a its maximum return of 15% (or 4.77% paid an average annual return of just Savings protection have a fixed end date. Unlike a direct saving and one-in-seven chance of earning the a year) is more achievable. And despite 1.34%, while products from Skipton BS Perhaps the one saving grace of investment in the stock market, you investing in our maximum. Shockingly, it would have its apparent superior performance, the and Legal & General would each have structured deposits is that your capital can’t hang on and wait for the market view, often giving paid out the minimum return of just average return on the Investec product paid out an average of under 2% a year. is protected up to £85,000 under the to recover if there’s a dip in your customers the impression that they’re over 2% a year in almost all cases in over the past 10 years would, at 2.02%, These products would have performed Compensation selected index just before the likely to do better than they actually are. Scheme, so you’d get your money redemption date. Some providers Although such products are tempting back if your provider went bust. protect you against stock market at a time when interest rates on savings But beware of similar-looking fluctuations towards the end of the accounts continue to plummet, banks, Structured deposits: what would they have paid out? products without this protection. The term by using the FTSE’s average building societies and financial Morgan Stanley FTSE Simple Growth closing value over the final six to 12 advisers need to help their customers The illustration below shows ending on each day over the past 100 index. Where providers offer within the sector. Where two Plan 16, for example, looks like the months. However, you still can’t time understand what their appetite for risk how often each index-linked 10 years to 1 November, as well more than one structured deposit periods are available, we’ve then products in our table: it pays out a your exit from the investment without really is, and how much money they savings product would have as the average return you would product, we have selected the chosen the longer investment return based on the performance of the incurring penalties and you could lose could ultimately afford to lose out on. paid out the advertised maximum have earned before tax based product with an upper limit on period. Annual returns are FTSE 100 and repays your capital in full out if the stock market rises sharply at For the vast majority of people, a and minimum returns for periods on the performance of the FTSE returns to allow easier comparison rounded to two decimal places. if the FTSE falls. However, your money the end of the term. fixed-term savings account will be the is not protected under the FSCS, but It is sometimes possible to get out best place to put their money. And if rather is invested in a Morgan Stanley earlier, but you will usually lose the they have a good savings buffer built Maximum Chance of Minimum Chance of Average up, and are ready to start investing, Banks and Desposit corporate bond. If Morgan Stanley fails, return you’ve earned so far and possibly Products annual maximum annual minimum annual % you could lose some or all of your money. more. With the Investec, RBS and the next step should be to consider term return return return return return These products are commonly known Yorkshire BS plans, for example, you building a diversified portfolio of stocks 6.48% as structured investment products. could get back less than you put in if the and funds (see ‘Alternatives’, p45). RBS 0% Santander offers two similar products. stock market has fallen. The Santander Structured deposits have crept into UK Accelerated Growth 3% 48% Under one, the most you could earn product doesn’t allow access to your the mainstream over the past few years, Deposit Plan 1 5 years 1.34% 11 months each year is 4.66%, while you could money before the end of the term at with banks and building societies 6.99% earn as little as 0.06%. In almost two all, unless you die. presenting them as a mass-market Cater Allen 0% thirds of periods in the past 10 years, alternative to savings accounts. This Enhanced you would have earned the minimum. Loss of extra returns Unlike direct positioning is completely wrong, and Total ink cost: 1% 48% Growth Plan 12 6 years 1.34% With the product offering no protection stock market investments, your capital Which? believes it is time that these £37.44 under the FSCS, many investors will isn’t at risk in a structured deposit. But products were brought under the 5.77% question why they would invest in this you won’t receive any dividends – a same regulations as other Skipton BS 0.82% product given the downside risks. distribution of the profits earned by investments and sold with Super Tracker 4% 57% companies in a stock market index – regulated financial advice. Bond 12 6 years 1.74% Other problems we found only the capital growth. On a five-year Banks should also be banned Upper limits Some structured product, that means you miss out on from receiving commission for 5.77% Legal & General 1.21% deposits have an upper cap, which more than five years’ worth of dividends recommending these products. 6 Year Growth 0% 61% brings with it two dangers. If the stock compared with direct investment. We want the regulator to take Deposit Bond 16 6 years 1.89% market does very well over the period, With some providers, there is also strong and decisive action to stop you won’t enjoy the full growth. This is no return on the deposit during the consumers being misled. Investec 4.77% particularly true if the product has a ‘holding period’ – between when you 0% relatively low upper limit. Yorkshire hand over your money and the official FTSE 100 3 Year 47% 53% Deposit Plan 37 3 years 2.26% BS’s Fixed Growth 10, for example, has launch date of the product. For RBS’s Special offer an upper limit of 30% over six years, recent issue, for example, the plan was For more on savings, equivalent to 4.47% a year. While not a open for deposits between 13 August Santander 6.99% 2.06% buy our book Save major issue in the current low-growth and 12 October 2012, but the opening and Invest for just Stockmarket Linked 0% 94% environment, an upper cap would index value wasn’t taken until 26 £8.99 incl. UK p&p Savings Bond (Issue 26) 2.10% b illustration 6 years have come into play in over half of the October, so you could have lost out (RRP £10.99). Call periods ending between 1990 and 2012. on over two months’ return if you’d 01903 828557 or visit www. Yorkshire BS 4.47% 1.00% Conversely, products that advertise invested early. which.co.uk/books and enter y

: paul butt paul : discount code INVEST2 at the Protected Capital 63% 37% Account - Fixed 6 years 3.19% GO ONLINE If you’re ready to start investing in the stock market, our beginners’ guide to checkout page. Offer ends 1 Growth 10 investment explains the different options, to help you choose the right investment plan February 2013. for you. Visit www.which.co.uk/invest

46 Which? January 2013 www.which.co.uk www.which.co.uk January 2013 Which? 47