What is a structured deposit product?

What is a structured deposit product?

Category: Investments

Updated: 10/07/2015
First Published: 24/10/2013

In simple terms, a structured deposit product can be thought of as a combination of a traditional savings account and stock market investment.

This is because the returns generated from a structured deposit are linked to the performance of a particular index, or indices, for example, the FTSE 100.

However, unlike investment products, structured deposits guarantee that, regardless of how the stock market performs, your initial investment will always be returned in full at maturity.

Remember also that structured deposits are usually protected by the Financial Services Compensation Scheme (FSCS), which means that if the financial institution you have invested with goes bust your investment will be protected up to the first £85,000 per person per banking licence (£75,000 from 1 January 2016).

How structured deposits work

• A lump sum is invested with a bank or building society at the outset for a fixed term, typically anything between three and six years.

• Unlike a traditional fixed rate savings account, the return generated through a structured deposit is variable because it is linked to the performance of a particular stock market index or indices.

• Structured deposits guarantee that regardless of stock market performance you will always get back your initial investment.

What are the advantages?

• The combination of capital protection and index-linked growth potential gives investors the opportunity for higher returns than could be achieved through traditional savings accounts.

• Stock market exposure is limited to ensure investors receive their initial deposit regardless of how the index performs.

• A structured deposit product is normally covered by the FSCS up to the first £85,000 invested per person per banking licence. This level of protection will reduce to £75,000 from 1 January 2016.

• Investors can choose from a wide range of structured product plans. For example, some are designed to potentially offer a high level of annual income, but with less capital protection – these are known as structured investment products which does not list. Some other products provide the option of early maturity which is dependent on how well the index that the product is linked to performs.

What are the disadvantages?

• The reduction in risk is offset by the lowered potential for reward. This means investors probably won't receive the full benefit of any index rise and nor will they receive dividend payments.

• The complexity of structured deposit products can leave many investors confused.

• Structured deposits are not the same as standard bank or building society savings accounts as there is no guarantee of returns being achieved.

Remember, structured deposits are complex products, so it is always a good idea to seek independent financial advice before investing in this type of product to ensure you select the best product for your individual needs.

View our structured products page.

Disclaimer: This is a basic guide to structured deposit products. It does not cover every circumstance and nor is it intended to be a source of advice. The information it contains is correct as of October 2013. Some of the information may become inaccurate over time, for example because of changes to the law.

Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.

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