Poor yield from financial products

Do you fit into any of these categories? What about your family members?

1. Many people earn a low rate of interest on bank deposits. The bank interest rate, which has been less than 2% for several years and now less than 1%, is insufficient to cover the rate of inflation, which has now increased to more than 5%. If they invest in other financial products, they have to pay high charges and get a poor yield.

2. Many people invested several billions of dollars in structured financial products in the hope of getting a better yield than bank deposits. They were taken to the cleaners. Many housewives and retirees told me about their investment in the capital guaranteed products that were heavily advertised and sold by our trusted banks. After locking up their principal for five years, they get a total return of less than 1% per year, worse than bank deposit. They missed the chance of earning more than 10% per annum on the booming stockmarket.

3. For most people who invested in unit trusts and investment funds offered by life insurance companies, the outcome was not better. They have to suffer an upfront charge of 3% to 7% on their investment and an annual charge of 1% to 3%. After deducting these high charges, the net yield on their investment is mediocre and does not commensurate with the risk. The fund managers and other financial intermediaries have taken away most of the gains.

4. The worst cases are the hundred thousands of people who invested their regular savings in an investment linked product sold by the life insurance companies. In addition to the high charges mentioned above, they have to suffer “allocation rates” that takes away two years of their savings to pay commissions to the insurance agents. Many were not aware about the financial impact of these predatory “allocation rates”.

This is an extract of an artilce printed in: http://www.theonlinecitizen.com/.