Nasty small-print surprises

This product is guaranteed, it's gold, it's platinum, it sounds wonderful! Pity it's just a name.

It's funny how financial companies give the most positive names to the most expensive products to make them sound wonderful. Where it's not easy to make the name positive, players in the industry will use different names and will change them regularly to confuse us. Even some of my colleagues in the industry, who should know better, are taken in by them at times.

The names of some products probably convince many people they're wonderful in every way in the same way that we're convinced an item of food must be healthy, good for the environment and GM-free if we see the word 'organic' on it. Not that I think a comparison between organic food producers and the banks is entirely fair. To start with, food producers' marketing techniques look like they were developed by toddlers when we compare them to the banks!

Here are some real classics the industry has come up with:

Guaranteed Equity Bonds

'Guaranteed' is a great, positive word. Shame it's attached to this product, as it makes you believe you can't lose money. However, with many, you can end up with less than you started in nominal terms. What's worse is that with all of them you could also end up with less in real terms.

What they also don't make clear is that yes, in some ways the risk has been reduced compared to investing directly in shares or funds (in at least one way the risk can be higher, but let's not get into that), but also the potential and probable rewards have been massively and disproportionately reduced through some very clever little ideas. They didn't squeeze that tidbit into the name.

These aren't suitable for most people, who'd be better off with savings accounts for risk aversion and a diverse portfolio of shares for potential higher rewards.

Each bank typically gives its own guaranteed equity bond a different name, making it harder to read an article such as this and spot one afterwards. Here's a partial explanation of some of their negative points, so you can better recognise them, whatever your bank calls them.

Absolute Return Funds

These typically aren't provided by banks, but they're all big bad finance companies, right? The name makes you believe that you'll get a positive return all the time even when the pound, the stock market, property and everything else is collapsing at once. The companies don't actually promise that – they wouldn't be allowed to – but right from the name they make you believe they can achieve an impossible target.

It's interesting that the investment fund industry keeps developing new areas in which it claims the smartest managers reside. To start with, it claimed that managers of 'actively-managed funds' were highly intelligent people who can invest our money far better than we can. ('Active' is another positive-sounding word.) Slowly people realised that eight or nine out of ten of these managers don't even beat the market over five to ten years or longer, because their charges are too high.

So the industry starts pushing other things such as hedge funds and absolute return funds, saying that the really really super genius managers work here. What do these funds give us? Even higher charges, with still no qualifications or investing track record required for the fund managers.

The higher-lending charge

It's not just the names of products but the names of fees that receive the propaganda treatment. Take the higher-lending charge, which adds a fat fee to your mortgage when you take out a big loan with a low deposit, and due to it being added to the mortgage it costs you several times that in interest over the years.

This used to be called the mortgage indemnity guarantee, but people learned to hate it, so that's why it was re-named. People are beginning to hate this one now, so when it makes a comeback (it's not around much at the moment, with lenders not willing to lend such high amounts) it's all lined up to be called the 'Generous Loan fee'.

Get the new MBNA Kryptonite Credit Card

Remember when gold was the best metal to have? So it was with credit cards. If you had a gold credit card you were special. Then card companies started calling all cards gold and wealthier people didn't feel special. As a result, we've since had Black, Platinum and Diamond. What's next? Kryptonite? We still get charged whacking great interest rates and need to keep an eye out for dozens of costly credit card booby traps, whatever material our card is named after.

And then there's the name 'credit card' itself. You're not in credit with it; it is in fact a debt card.

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