"Capital notes are often issued by well-known banks, but are riskier than bank deposits. They may not be suitable for many investors. A household name and high headline rate of return alone are not good reasons to invest. You also need to understand the complex and potentially risky nature of these investments, and whether they are suitable for you. What are bank capital notes? Banks must hold a certain amount of ‘capital’ to make them less likely to become insolvent (go out of business). Banks issue capital notes to help them raise the capital they need. You may hear different investments being described as ’Tier 1 capital’ or ’Tier 2 capital’ – this describes how the bank can use your money to meet its capital requirements. The important thing for investors to remember is that different capital notes have different terms and conditions, so it’s always important to read the investment statement or product disclosure statement carefully. Common features of bank capital notes include: -The bank may stop interest payments, or reduce the amount of interest they pay to investors, even if they’re still in business. -The bank can convert the notes into shares in the bank (or their parent company). The value of those shares at the time they are converted may be a lot less than the amount you paid for the capital notes. -The notes may be cancelled so you lose some or all of your investment, even if the bank is still in business. Where these features are included, they will be described in the offer document (investment statement or product disclosure statement). These features are usually subject to complex tests and conditions even experienced investors can find hard to evaluate. Capital notes can also be issued by companies other than banks, and there are other financial products with similar features and risks to capital notes. These may be called ‘hybrid securities’, ‘subordinated notes’, ‘preference shares’ or ‘convertible preference shares’. The product’s investment statement or product disclosure statement will describe its features." Source: FMA Guide On Capital Bank Notes