Talk to your parents about money – don’t let the banks fleece them

I apologise that I’ve written about this before. But it’s important.

I was in the bank yesterday. At the counter beside me was an elderly couple, probably in their mid-seventies. They’d come in because one of their fixed-interest bonds had matured and they needed to reinvest the money as they required the interest to live on. They looked pretty shocked when the best 2- and 3-year deals the bank would offer were around 2.3% – less than the level of inflation. The reason interest rates are so low, of course, is idiot Osborne’s Funding For Lending (FFL) scheme which means the banks don’t need to attract our savings.

But the elderly couple needn’t have worried. The ever-helpful bank offered to arrange a meeting with the bank’s “financial adviser” (commission-based salesperson). I don’t know what would happen at that meeting. But I imagine the elderly couple would have been persuaded to put their savings in some crappy supposed “investment” that would earn the bank and the salesperson plenty of commission.

Probably the bank would have flogged the couple one of their “structured products” promising something like “80% of the growth in the stock market but a guarantee of your money back in full if the stock market fell”. Around £60bn of (mainly elderly) people’s savings have gone into these worthless products. I assume the people persuaded to put their savings into these products don’t understand that almost all the benefits of any stock-market investment come from the dividends paid by companies whose shares you own, not from rises in the overall market. Yet these structured products don’t pay any of these dividends to savers. With the banks earning probably 3% upfront when selling these products and 1% a year in trailing commission, the banks have probably pocketed around £1.8bn in upfront commission and are taking £600m a year in trailing commission.

Osborne has created a disaster for the elderly. His FFL has led to interest rates on savings being slashed. This has forced people with savings to look for financial products with supposedly better rates of return – usually complicated, risky, stock-market linked schemes. The older generation are much more trusting of banks than younger people and so believe what banks’ “financial advisers” say.

A few years ago, Barclays and other banks managed to wipe out up to half of many elderly people’s life savings by convincing them to put often hundreds of thousands of pounds into two horrific funds run by Aviva. Now the banks are flogging structured products to the unwary.

This week my mother, who is in her mid-eighties, had a meeting with her bank about reinvesting money from some bonds that had matured. I had a really difficult conversation in which I tried to warn her about what her bank would try to sell her. Her reply was “I’m not stupid”. But the hundreds of thousands of other elderly people who put £60bn into structured products weren’t stupid people either. If they had been, they wouldn’t have managed to amass so much money. Yet they still got conned by their banks. 

If you have any elderly relatives, you have to start talking to them about their money. It’s not an easy conversation to have. But if you don’t have it, their bank will fleece them.