10 things to know about Tracker bonds

1 The investment terms for tracker bonds are usually between three and six years and most do not allow investors to access their cash during the term.

Consumers therefore should make sure that any money invested in the bonds is genuinely surplus to their requirements and isn't part of their rainy day "in case of emergency" stash

2 Tracker bonds are a cautious investment product, but they may not be suitable for everybody. The Ombudsman for Credit Institutions, Mr Gerry Murphy, has indicated to consumer watchdog IFSRA that his office has encountered instances of mis-selling to elderly investors who had locked up their total savings for the term of such bonds without fully realising the nature of the products or that they would have no access to the money.

3 Shopping around is the most obvious way of getting the best value on any savings or investment.

Trackers are complicated products. Getting a qualified financial adviser to shop the market for you could prevent a few headaches.

Make sure you know what commission, if any, your adviser is receiving.

Some advisers may recommend that you steer clear of tracker bonds altogether.

4 Remember that any tracker with less than a 100 per cent guarantee is a substantially higher-risk investment.

Even where there is a full guarantee, there is still a risk that the returns won't beat inflation, meaning the value of the money will have decreased in real terms.

5 Returns may also fall short of the rates offered by the best deposit accounts: a return of 10 per cent gross may sound good, but over a six-year term it is equivalent to an annual rate of interest of just 1.6 per cent - at least half a percentage point short of the guaranteed return on some deposits.

6 Remember that another catch with almost all trackers is that, unlike direct shares, investors do not benefit from any dividends distributed by the companies.

Products such as Canada Life's Dividend Bond have sought to fill this gap in the market and do pass on dividends, however this is not a typical tracker and does not offer any capital guarantees

7 Some trackers are sold as "combination bonds" where part of the money is invested in a one-year deposit account and the rest is placed in a tracker.

Consumers should beware that the rate on the deposit may seem flattering, but it is usually being subsidised by the returns on the tracker.

In other words, they may be given a lower-than-average portion of the growth on the tracker bond.

The Irish Brokers' Association (IBA) would like to see these combination bonds banned.

8 In the past, some products have been advertised along the lines that "if you're not in, you can't win", with any risks or potential downside buried within the complex jargon of the small print.

However, IFSRA warns that consumers should not be rushed into making a hasty decision on any investment.

9 Read all documents carefully and make sure you understand what you are investing in before signing anything - especially if what you are signing is a declaration that states you have read and understood the terms and conditions.

10 Do not be swayed by any statistics showing past or projected future performance. Past performance is no guarantee of future returns. In fact, it is of very little relevance at all.

As trackers are stock market-based investments, they will always involve a degree of speculation. There is no real "probability" of any particular return, the Ombudsman notes.