Money Insider: Low rates drive savers to take risks with investments

this week RBS launched two new managed funds aimed at those fed up with the paltry returns they can get at the moment through traditional savings accounts. The new funds are available for investments from as little as £1,000 and one is labeled Cautious Managed and the other Balanced Managed.

With cash savings accounts offering such poor returns for the last two years, it is no surprise to learn from the underlying RBS research that more than 1.2 million people who have never previously invested in equity-based products may now be tempted to do so. Let's face it, anyone checking their savings account statements should be thinking hard about what they can do in order to try to obtain a better return on their savings. But while people are free to do what they wish with their savings, I think it's essential that they seek guidance from an independent financial adviser who can explain in layman's terms the potential risks they face in their pursuit of better returns.

Equity-based investments are in the main medium to long-term products and consumers, particularly novice investors unsued to the fluctuations of the stock market, need to fully understand that their capital may not be 100 per cent guaranteed. Unfortunately there is always the danger that novice investors plump for a fund because of the reassuring description they see on the tin.

To highlight the fact that a product name shouldn't be the reason to invest in a particular fund, in a recent FSA consultation document, the regulator reminds financial advisers not to rely on the name of the fund as proof of a particular risk profile, but requires advisers to look at the investment strategy (and understand it).

While I'm not endorsing the new RBS products, I like the fact that the volatility of these funds will be managed on a daily basis, and that the volatility will be maintained within a narrow band – a maximum of 10 per cent for the Cautious fund while the Managed fund is between 10 per cent to 15 per cent.

However, it is worrying that the volatility of funds within funds with the same label, such as Cautious or Balanced, can vary so widely and is another area that advisers and the regulator need to look at more closely.

With adverse headlines relating to non cash investments from the likes of Barclays and Norwich & Peterborough Building Society in recent months, there will undoubtedly be some fear among cash savers who will always be prepared to accept a much lower return in the knowledge that their cash is safe.

Although cautious and managed investments have the potential to provide superior returns when compared with a cash savings account, the element of risk is the crucial piece of information that an adviser should fully understand and be able to communicate clearly to his client. Investors, by the same token, need to understand when it may be worth taking and risk and when they should stick with safer, albeit potentially lower, returns.

Lloyds TSB offers hope to would-be home movers

There has quite rightly been a focus on the plight of first-time buyers in the UK and the hurdles they have to face, not only in having to raise a massive 10 per cent to 20 per cent deposit, but also finding a bank or building society that will approve their application for finance.

However it's not just the wannabe home owners who are finding the going tough – people in a similar position who were lucky enough to get on the property ladder three or four years ago are now trapped in their current home because a fall in property values means the equity in their home is very small and in some cases is in a negative position.

Many of these people have done nothing wrong – they have kept up their mortgage payments as per their contract with their lender, it's just that economic factors outside of their control, ie falling house prices, have gone against them. Lloyds TSB has recognised the plight of these people they call "second steppers" and has launched an equity support initiative to help.

Under the terms of the scheme, existing customers are able to move to a more expensive property as long as they pay the difference from their own funds. For example someone with a £110,000 property and a £130,000 mortgage (loan to value 118 per cent) could move to a property costing £120,000 if they are in a position to pay the additional £10,000.

This will help some move to a larger property to accommodate a growing family. By injecting the extra £10,000 in this example, both the borrower and the lender are in a stronger position as the loan to value is cut to 108 per cent.

Similarly if a borrower with little or negative equity wants to relocate to another property for work purposes, they will now be able to do so under the Lloyds equity support scheme. While this isn't going to unlock the bottleneck in the housing market, it is the sort of forward thinking that we need to see more of to get the property market moving during 2011.

Andrew Hagger is an analyst at