By Paul Lewis BBC Radio 4's Money Box

A quarter of a million investors in products sold as 'safe' were officially warned on Saturday that they could lose some or all of their money.

The Financial Services Authority says that people who put their money into bonds that guarantee a high rate of income could find that some or all of their capital has gone when they come to cash in their investment.

Many of the investors are aged 60 or more and the FSA's John Tiner told BBC Radio 4's Money Box on Saturday that people often did not understand what they were being sold.

"These products are sold as bonds and... many consumers and investors associate the term 'bond' with a sort of middling or lower risk kind of security.

"In some cases... these bonds have been sold by way of comparison to things like building society accounts...

"And... In many cases investors have not realised their capital is at risk."

Growth targets

Typically these so-called 'High Income' or 'Extra Income' bonds offer a high return - 8% or more - and they pay that, come what may.

But the capital invested is linked to a stock market index and the bonds only return the capital in full if the particular index grows significantly over the term of the bond - usually between 4 and 7 years.

If the index fails to meet its growth targets, the capital returned at the end may be much less than was originally invested. In exceptional circumstances the FSA says it could be zero.

Research by the FSA shows that 250,000 people hold �5 billion in these investments - an average of �20,000 each.

Retirement

Many of these investors are seeking a high and reliable income in retirement.

But John Tiner is concerned that when they come to cash in the bond they will be surprised that the income has, in effect, been paid by running down their own capital.

He told Money Box that he would be looking for adverts and promotional material "...that we think do not adequately describe the risk to investors.

"And we already have a number of those cases where we will be moving ahead with enforcement action against the relevant firms... to penalise the firms for putting out misleading material."

Compensation

John Tiner said compensation may be paid if the product was mis-sold - either because wrong advice was given or the promotional material did not explain the true risk clearly enough.

Anyone who thinks they have been mis-sold one of these products should make a written complaint to the company that sold it - either a bank or IFA which gave advice or which passed on the misleading information from the product provider.

If the complaint is rejected then the customer can seek compensation from the Financial Ombudsman Service.

BBC Radio 4's Money Box was broadcast at 12pm on Saturday, 14 December 2002.