At a glance
- Structured deposits offer exposure to stock market growth but with a guarantee that capital will be returned.
- They provide an opportunity for better returns than through a traditional savings account, but no guarantee of any return being achieved.
- They should not to be confused with structured investments, which do not promise the return of capital.
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 pure investment products, structured deposits guarantee that, regardless of how the stock market performs, your initial investment will be returned in full at maturity.
Structured deposits are also sometimes referred to as Guaranteed Equity Bonds, or GEBS for short.
How structured deposits work
- A lump sum is invested with the account provider 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?
- Potential for higher returns than could be achieved through traditional savings accounts.
- Stock market exposure is limited to ensure investors receive their initial deposit back regardless of how the index performs.
- Most structured products are covered by the FCS, meaning your funds are protected up to £85,000 should the provider go bust.
If you’re looking for a structured deposit, make sure you don’t take out a structured investment by mistake. Structured investments do not offer the same protection or guarantees over the return of capital as structured deposits.
What are the disadvantages?
- The reduction in risk offered by a lowered potential for reward than direct stock market investment, for example, via an ISA tracker. This means you’re unlikely to receive the full benefit of any index rise and will not 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.
However, 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.
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.