THE £1.5 million fine levied on Santander this week by the Financial Services Authority (FSA) has highlighted the murky world of "capital protected" products, widely sold on the high street as well as to savvy investors, which appear to offer reward without risk.

Savers and investors poured £9 billion into more than 900 so-called structured products last year, and the Financial Conduct Authority – the new consumer protection watchdog – has this month singled out the market for early scrutiny.

Santander had failed from late 2008 to early 2010 to explain to buyers of its Guaranteed Capital Plus and Guaranteed Growth Plan that the guarantee might not be met in certain circumstances.

Instead, it claimed to be "covered by" the Financial Services Compensation Scheme, implying comprehensive insurance of your cash (up to £50,000 at the time). In reality, the guarantee depended on the viability of a web of subsidiaries, some offshore, set up by Santander as "counter-parties" to take the risk – essentially of markets crashing.

"One of the problems was these products were so incredibly complex that nobody could have understood what the structure was," commented Joseph Eyre at the FSA.

It was the failure in 2008 of Lehman Brothers, which had backed the guaranteed products of Legal & General and others, which first highlighted the dangers to investors. While structured deposits, the basis of lower-risk high street products, are normally covered by the FSCS, structured investment products are not.

Some of last year's best sellers were products linked to inflation. Yorkshire Building Society offered low-risk savers a bet on the RPI index over six years – if it rose from 5% to 6% that would equate to a 20% return for investors or around 3% a year, but if it was static or fell they made nothing but lost nothing.

Santander added a 5% top-up to any gain, and also guaranteed a 0.49% return if the index stalled or fell.

Effectively, savers were being asked to predict inflation, to lock up their money for six years, and to accept the risk of a 0% return instead of the 4.5% a year return, or 25% in total, available right now on five-year bonds.

Yorkshire has a new structured product on offer, on more familiar lines. It offers a return of 34% payable on maturity after six years, equivalent to 5% a year, as long as the FTSE 100 index does not fall below 60% of its starting level at any time during the period.

At current levels, that would mean the index staying above 3540.

If the index does fall below that level, the pay-out is 1% a year. Customers can save from £3000 to £85,000 (the FSCS compensation limit) and use their Isa allowances.

This differs from past offerings from the likes of Santander, which in 2009 offered investors 50% of any growth in the FTSE 100, while guaranteeing a minimum return of 11% over six years whatever happened. Had a plan started when the FTSE was languishing at 4000, investors would now be looking at a 25% return, assuming the index is at 6000 in 2015 – hardly an eye-catching return for six years of uncertainty.

Specialist provider Investec, the South African bank, this week announced the early maturity of its latest FTSE-100 Kick-Out deposit plan, which has paid out a 13% return after two years, demonstrating the benefits of the "kick-out" model where a plan closes when it is sufficiently ahead, rather than locking up your cash for six years.

Gary Dale at Investec, which sells through IFAs such as Save & Invest in Glasgow, commented: "This is yet another positive maturity highlighting the benefits structured deposits can have as viable alternatives to cash holdings. A simple return of 6.5% per annum far outweighs returns from cash savings products."

He added that returns "are of course contingent upon the direction of the FTSE 100 over the plan's term".

Meanwhile, Investec next week launches its latest kick-out plan, not deposit-based and therefore not FSCS protected, but instead with a 'UK 5 Option', which cleverly transfers the credit risk from Investec to a spread of HSBC, RBS, Lloyds, Nationwide and Santander and offers slightly less return.

The plan will pay 9% or 11% in any year the FTSE 100 rises, and may mature early at the end of any year, with the potential to pay up to 54% or 66% after six years. The "UK 5" may protect the upside, but not the downside, because investors will lose capital if the index finishes at 50% below its starting level.