Structured Products Offered by banks

[hotmark777]

Have any of you had any experience dealing with the various structured products offered by banks? They are products based on an underlying asset (such as a stock index, price of commodity, or even currency exchange rate) that try to offer higher yields than simple savings account interest rates.

The catch is that basically if certain conditions are broken, you can lose either the interest payment promised, or even part of your capital. An example that i came across recently was one involving the Eurostox50 index where basically an investor was offered 9% on the dollar for three years, however if the Eurostox50 index fell below 50% of its current level, you would be paid back only 50% of your initial investment.

Although this is highly unlikely, i believe banks make their money on these products because they calculate the probablity of such an event occuring, then offer a product that has a positive EV for them. For example in the Eurstox50 case, they are losing 4% if things remain the same, while they will be gaining at least 50% if the Eurostox50 falls below 50% of its level. So for this to be profitable, there should be around a 10% probablility that it can happen, which isnt far from impossible given the current global market turmoil and volatility.

So from the previous conclusions, is it safe to say that one should never invest in stuructured products offered by banks as they are always structured in a way that it is highly +EV for the bank and not the investor, although at face value the investor will think that he will be gaining a much higher yield as long as an improbable event does not occur?

[Ray Zee]

banks are lousy places to put money in except for a checking account. they give very low returns for their customers.

[ahnuld]

[ QUOTE ]
banks are lousy places to put money in except for a checking account. they give very low returns for their customers.

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true for the most part although there are newer banks coming out with better structures (most of them online) and you can actually get good rates of return if you eurobank, meaning you you bank say canadian dollars in a canadian denominated account in the united states

[Jcrew]

I think they make money on the commission and NOT by being on the other side of the bet.

[Uglyowl]

[ QUOTE ]
banks are lousy places to put money in except for a checking account. they give very low returns for their customers.

[/ QUOTE ]

Many claim "cash is king" nowadays. Assuming one believes this is true, where do you keep this money?

[Ray Zee]

when you believe cash is king. keep it liquid in a money market accout with a big brokerage or a local credit union that pays high interest. now around 5% or more.
then be ready to pounce on good deals when you find them. it could be a stock, house, or even a boat that is too cheap that you can sell later for much more.