A survey launched by Which? has raised concerns over the transparency of online adverts purporting to be savings products that guarantee high returns. Companies have been found to be targeting keywords such as 'best savings rate' in an effort to get unsuspecting savers investing in high-risk, unregulated investment products.
Many of the adverts promised high ‘fixed returns’, but there was no mention of the investment risk involved and no clarity as to where the money was being invested. Consumers often seek comfort in knowing that the company they are doing business with is regulated by the Financial Conduct Authority (FCA), however, what many people do not realise is that a regulated company can sell unregulated products. This means that their cash is not protected in the same way as regulated savings and investments and so is not protected by the Financial Services Compensation Scheme (FSCS).
How do I know the investment I've chosen is high-risk?
When using search terms such as 'best savings account' and 'best ISA rates', always be wary of adverts (Often shown at the top of Google results) offering high-interest rates. Companies can pay to have their advert shown at the top of the page, even though it is not delivering the specific result that has been searched for.
A spokesperson for the Financial Conduct Authority (FCA) said: ‘In relation to those specific adverts on Google, the FCA does not pre-vet advertisements and we cannot comment on a particular firm’s promotions. However, we are aware that Google searches for financial products and services can return misleading results and many of these scams involve financial products which we don’t regulate under the Financial Services and Markets Act 2000'.
‘We have made it clear to regulated firms that if they are approving financial promotions, even for products that are not regulated, they must ensure they are fair, clear and not misleading. And that we will take action against firms who don’t meet those requirements.’
What are the risks of investing in unregulated products?
- Your money will not be protected by the Financial Services Compensation Scheme (FSCS)
- If the company goes bust you are unlikely to get your money back
Understanding the risk of unregulated investments
If the rate seems too good to be true it probably is.
The average interest rate as of September 2019 was 1.64% and the highest is just below 3%. If an advert is promising higher returns then you should look carefully at the small print as there are likely other factors involved, such as increased risk. Investing in unregulated products isn't always a bad thing as there is the potential for larger returns, but the key is understanding the risks involved.
Find out if the product is FSCS protected.
It should state on the company's site if it is FSCS protected. If it is unclear on their website call the company to find out.
Check if the company is FCA registered.
If the company doesn't appear in the register it doesn't have to follow rules set by the Financial Conduct Authority (FCA) and therefore you cannot complain to the Financial Ombudsman Service.
If you are currently looking for the best savings account check out our Savings Best Buy tables for a regularly updated breakdown of the best savings accounts in the UK.