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This morning, I came across the term, structured deposits. As I am still learning about finance, I am quite curious on different types of deposits.

  1. In layman's terms, What is a Structured Deposit?
  2. What are the pros and cons?
  3. How can someone manage its downsides?
  4. What's the differences between these and a Fixed Deposit?
  5. and extra tips that I haven't covered in my questions.
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  • Telling us where you read about structured deposits and what the article says about them would be helpful. Please provide some links.
    – Dilip Sarwate
    Jul 4, 2012 at 4:50
  • sg.finance.yahoo.com/news/… . This is article that I have read. It provides some information. But I just want to know whether I can get different ideas , for example: number 3.
    – kitokid
    Jul 4, 2012 at 5:15

2 Answers 2

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  1. They are a derivative investment, with no single set of rules. i.e. one must read the prospectus to know what the terms are for any given product. By "derivative," I mean the return is based on something else, while not necessarily being a direct investment in that 'else.'
  2. The pro is you can make money. The con is that you are not likely to really understand the risk/reward. These are not for the typical investor.
  3. By avoiding them
  4. They are not a CD or fixed deposit. They are contrived. See my example below.
  5. If my response in answer 3 wasn't clear, "do not buy such products."

Say we are in 'normal times.' Passbook rates are 5% or so. Longer rates, 6-7%. I offer you a product with these terms, for $10,000 I will return a "Guaranteed" $10,000 in 6 years and based on the stock market, 1% for every 2% the S&P is up beyond 10% at maturity. As the seller of this product, I take $6666, and buy a fixed investment, 6 years at 7% in treasuries will return the $10000. Really. I then take the $3334 and buy out of the money calls on the S&P each year to capture the gains, if any, and to deliver on my promise.

This is one example of a structured deposit offering. They can have nearly any terms one can imagine. Tied to any product. S&P, Crude Oil, Gold. Whatever.

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  • Yeah... by the time you are qualified to understand whether or not any particular structured product like these is a good idea, there's a good chance that you can do better on your own.
    – user296
    Jul 5, 2012 at 17:11
  • @fennec correct :)
    – kitokid
    Jul 6, 2012 at 2:45
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With reference to the UK:

Structured deposits should not be confused with structured products.

Structured deposits are often, quite simple deposit accounts. You place your money into what is essentially a deposit account, and are therefore guaranteed not to lose your capital as with any other deposit account. The attraction is that you could earn more than you would in a normal deposit account, often around double, due to indirect exposure to the markets. Another benefit is that structured deposits can form part of your annual cash ISA allowance, so the returns can be tax free.

These products are popular with those who have savings which they are happy to deposit away for between 3 and 6 years, and are looking for better rates of return than standard cash ISAs or savings accounts.

The main drawback is that you may not receive anything other than your original deposit. That poses a minimal risk if your savings are earning less than 1% currently.

See my article at financialandrew.blogspot.co.uk/2013/03/fed-up-with-low-returns-from-cash-isas.html for a more rounded overview of the structured deposits.

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  • Do you mean that structured deposits actually have chance of reducing your balance?
    – Pacerier
    Nov 27, 2013 at 10:14

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