What is a structured deposit product? - Investments - Guides | moneyfacts.co.uk


Moneyfacts.co.uk News brings you the latest financial & economic news & reviews of the best products in the UK by our team of money experts.

What is a structured deposit product?

Category: Investments
Author: Tim Leonard
Updated: 12/03/2018

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

This is because the returns generated from a structured deposit are linked to the performance of a particular index or indices, such as 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 in goes bust, your investment will be protected up to the first £85,000 per person per banking licence.

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 to receive 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.

  • Structured deposits guarantee that regardless of stock market performance you will always get back your initial investment. Make sure you are aware of the difference between structured deposits and 'structured products', which are investments that do not always guarantee your capital amount.

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 deposits 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.

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 2016. 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.