A few days ago, my father came back from the bank and told me that he had purchased a financial product with an annual return of 4.7%, requiring a five-year deposit. I asked him to show me the contract, and upon reviewing it, I discovered that this financial product was a non-guaranteed principal product, a collaboration between the bank and other institutions, and not a product issued by the bank itself. I was quite worried for a moment, but fortunately, the interest rate was not particularly high, and the fund-raising purpose was stated to be for urban infrastructure construction, which slightly eased my concerns.

There are many types of bank financial products, and the demand for financial management among ordinary people is also strong. Once you have experienced a financial return of over 5%, it is unlikely that you would be content with the 1.5% interest from a fixed deposit.

However, with so many bank financial products on the market, how can ordinary people discern which ones to choose? A moment of inattention could lead to falling into a trap, and it could be a big one.

The recent China Bank Crude Oil Treasure incident caused quite a stir, and those who do not understand financial management felt fortunate for not having purchased similar products. Many financial products on the market not only fail to appreciate in value but could also result in significant losses.

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Since 2012, there have been various incidents of bank financial products defaulting, even involving large banks. The "Zhongding Wealth" series of financial products from Huaxia Bank, the "Jujinbao" from Ping An Bank, and the "Deilibao" from Bank of Communications have all experienced default events.

Why do defaults occur?

The reason is that the financial products issued by banks have little to do with the banks themselves; banks merely act as intermediaries. For example, Huaxia Bank's "Zhongding Wealth" was a product of an enterprise called "Tongshang Guoyin Asset Management Co., Ltd.," which was led by a businessman from Henan and involved an equity financing plan. At that time, the investment threshold was 500,000 yuan, and the return rate was quite high, with an average annualized return rate of about 11% to 13%, almost three times the deposit benchmark interest rate.

With the credit of such a large bank like Huaxia Bank and such a high return rate, this product quickly raised 160 million yuan in funds. However, due to an economic downturn and the company's bankruptcy, the asset management company was left deserted, and the raised funds disappeared. Since it was a non-guaranteed principal product, the bank was not required to take on excessive responsibility, so the bank customers who purchased this product ended up with losses of about 100 million yuan.

How to determine whether this financial product is worth buying?

Firstly, on the product's prospectus, do not buy it just because it is issued by a certain bank; this is not necessarily reliable. On the product's prospectus, you should pay special attention to the investment direction of the product, that is, where the product is specifically invested. Is it very clear? If it is invested in cash loans, consumer loans, small loans, and similar products, I believe you should be extremely cautious under the current circumstances.Secondly, all product manuals will clearly state whether it is a bank-distributed product, that is, whether the bank is acting as an agent for the sale or not. If it is a bank-distributed product, it means that the bank is purely an intermediary in this process, and you will not know where the specific product is ultimately invested. There is a significant information asymmetry, which is difficult to grasp, and it is not recommended for investment.

Bank-issued financial products will have a 14-digit product registration code starting with the capital letter "C" in the product manual. Moreover, legitimate bank financial products will have the bank's name in the contract, indicating which bank issued the financial product.

Thirdly, you must pay attention to the information of the fundraiser. Everyone may have their own principles, but those that seem to have a lot of big names but do not provide you with some specific operational performance details. These fundraisers should be questioned.

Fourthly, distinguish between structured and unstructured financial products. Structured financial products are often linked to gold, oil, foreign exchange, stocks, credit, etc., while unstructured financial products are invested in bond repurchase, deposits, government bonds, financial bonds, central bank bills, etc. The risk of unstructured financial products is very low, and the risk of structured financial products is very high.

How to define excessively high interest rates? In fact, this is a difficult question to define. First, it changes according to the overall market interest rate environment. If the market interest rates are high, the interest rates of bank financial products will naturally be higher as well.

For example, in the current situation, the benchmark loan interest rate for one year is 4.35%, and for more than five years, it is 4.9%. So you can make some judgments based on the benchmark interest rates. For example, many products may be invested in some high-yield, but slightly higher-risk products. Fluctuations of 10%, 20% are all normal ranges, especially for banks with good reputations.

How to properly manage finances?

When investing in financial products, you should read the terms clearly, understand the real risks, and do not assume that financial products recommended by banks and securities firms, as well as fund products, have no risks. Many products that are defined by relevant departments as low-risk actually have significant risks.

In my view, stocks are actually a safer investment option because any financial product ultimately relies on the profits of some underlying companies to pay dividends, and most of these products are invested in non-listed companies, especially many that are financing the real estate industry and lending at high interest rates. It might be better to directly buy high-quality companies in the listed market, where the risks are even smaller.

In addition, you can purchase some better industry-specific funds, such as consumer, medical, and financial fund products. For some passive investors, you can choose index funds for regular investment.Please provide the text you would like translated into English.