Why the banks love your gran and grandad much more than you do

I’m sure you’re fond of your grandparents, but not as fond of them as our high street banks are. Bank ‘financial advisers’ (salespeople) call the elderly the ‘banana skin and grave brigade’ because they’ve got one foot on a financial banana skin (they don’t understand the overly complex savings products the banks want to sell) and one foot in the grave (they’ll soon be leaving us and so the banks feel there’s no harm relieving them of their money before they go). With interest rates so low at the moment, many elderly are not getting much for their savings, so it’s relatively easy for the banks to convince them to put their money into financial products which (salespeople claim) will give better returns.

The main con the banks are pulling at the moment, especially targeting the elderly,�is selling what are called ‘structured products’. Usually these have names like “Growth Bonds” or “Guaranteed Bonds” or “Protected Capital Accounts”. These typically promise to give you about 120% of the growth in a stock market if the market goes up and if the market goes down they guarantee to give you your money back. The problem is that stock markets only go up by about 1% a year. The main benefit of buying shares is from reinvesting the annual dividend in more shares. But buyers of these products don’t get the dividends. So any money put into these products is money down the drain. Salespeople make huge commissions on these products

If��granny and grandad�don’t want a structured product, banks will often recommend some unit trusts (which pay high commissions to the banks)�to their customers. Bob Diamond’s scum at Barclays recently had to repay over �80m for mis-selling mainly two funds – an Aviva ‘balanced’ fund that wasn’t balanced and an Aviva ‘cautious’ fund that was actually high risk. When you put money in a unit trust you really get fleeced. You lose about 5% of your money when you buy units, you lose about 3% a year in management and trading costs and then, when you want your money back, you lose another 5% because the price at which you sell your units is lower than the buying price. So if you keep money in a unit trust for five years, you pay out 25% to the bank and unit trust company. Just for you to break even, the unit truist would have to grow your money�by 5% a year – very few achieve that. With interest rates at about 3.5% for a fixed 2- or 3-year savings account, your unit trust (which is a risky investment) would have to return 43% over five years – 8.6% a year – just to equal the return you get from a no-risk savings account. About 99.9% of unit trusts cannot deliver anything like this.

So talk to your grandparents before�Barclays and HSBC and Lloyds and Natwest rip them off and warn them about the banks’ worthless investment and savings schemes.