50% return if FTSE rises, 0.5% if it doesn't...

mbailey

Bring the discussion back to structured products where it started, there is a very good podcast by the Motley Fool from a couple of weeks ago which explains how structured products works and the reasons why you might use then.

http://www.fool.co.uk/money-talk/the-truth-about-structured-products-11428.aspx

MikeFinance

Obviously investment is about maximising the return on investment [after tax etc] with minimum risk. Currently the best rate for "safe" bonds fixed over 5 years pay around 4.5%. In the current market 7% is a very good rate, providing the increased risk is very small. The increased risks are Santander UK going bust or the FTSE 100 falling below the current level after 6 years. A recent report placed Santander the 10th safest Bank in the world with the only UK banks in the top 50 being HSBC, Barclays and Nationwide. Santander Group is about the 3rd most profitable Bank in the world. It seems that as Banks go Santander is quite strong, but the small risk is that it has to stay that way for another 6 years. I think most financial advisors would forecast that Santander UK will not go bust in the next 6 years. I think most financial advisors would forecast the FTSE 100 will increase in 6 years. If the FTSE falls you lose the 27% extra you could have made on a safer bank bond. If Santander UK goes bust you lose the lot. It is however far more likely that you will get your investment back plus 50%. So the real question is : Do you want to tie up money for 6 years and attitude to taking that small extra risk to get the extra 23%.
The FTSE is volatile day to day, down 2% today.

Daniel_Elkington

Nobody seems to have mentioned how these structured products actually work. I'll give an example using £100

Firstly about 70% goes into a future to buy back £100.50 in five years time. It may not be a future, but some form of derivative, usually a cash swap.

Then at most 15% goes to buy an option to buy shares.

The rest is paid to the bank, so out of that money your bank adviser will pocket 5% and the bank gets 10%.

Fairly steep. Also you said the banks are too big to fall. I think they can given our very recent experience of a banking crisis which caused the worst recession since 1939!

There are much better products than this. Please don't go for it.

Also has he told you about what happens when the ftse falls below 50% of its start value.

Daniel_Elkington

Oh also. It is not safe!!!

If the coverage is £50k then it is a risk based product. The bank needs shooting if it says it is risk free. Google Keydata for more on this.

There are structured products and structured deposits. Deposits are not capital at risk, products are.

There are so many reasons not to buy these things. Put the money in collectives and bed and isa them every year.