Michelle Monck

Michelle Monck

Consumer Finance Expert
Published: 07/12/2018

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.

What is a structured deposit?

A structured deposit has a set term like a fixed term deposit account, however instead of paying a guaranteed rate of interest, a structured deposit offers a higher level of interest that is conditional on the performance of a stock market index, such as the FTSE 100.   

Structured deposits are generally designed for investors that aren’t satisfied with the interest rates offered by fixed term deposits. They are willing to take the risk that they may receive no interest, in return for the potential to achieve a higher rate of interest if the index performs in a certain way.   

Some structured deposits only pay interest if the index rises, whereas some “defensive” structured deposits offer a lower interest rate which can still be paid as long as the index doesn’t fall by a certain amount.

Structured deposits are similar to fixed term deposit accounts, in that you must commit your money for a certain amount of time.

Is now a good time to get a structured deposit?

With the interest rates on savings at nearly all-time historic lows, many savers are looking at how they can improve the returns on their deposits.
Structured deposits offer savers a chance to earn a higher interest rate than is available from fixed term deposit accounts.
When deciding between a fixed term deposit account and a structured deposit, savers therefore need to decide whether they want a lower guaranteed interest rate, or a higher conditional interest rate.

How do structured deposits work?

Structured deposits are similar to fixed term deposit accounts, in that they have a fixed term and they are a deposit with a bank. However, structured deposits sacrifice guaranteed interest payments for higher interest payments that are conditional on the performance of a stock market index. Therefore, structured deposits may pay you a higher interest rate than you would get from a fixed term deposit account, but there is a risk that they may pay you no interest at all.

Where can I get a structured deposit?

If you are considering a structured deposit, then you can either invest via a financial adviser or apply online through a brokerage website.
A financial adviser may charge you a fee for their services, and they can help ensure that this type of investment is right for you, by giving you advice on the decision to invest. They are also responsible for making sure you understand the risks of investing in this type of product.
If you choose to go online, then you will be making the decision to invest on your own. This means you will not receive any guidance or advice if a structured deposit is right for you.
It is critical that you only invest in a structured deposit if you fully understand how the product works and fully understand the risks involved. If you are unsure about anything related to the product, you should seek advice from a financial adviser before investing.
You can find an adviser using Unbiased.co.uk.

What are the risks of structured deposits?

The biggest risk of a structured deposit is the loss of capital. Some structured deposits do not protect the capital invested at all. Other structured deposits are protected, meaning that if the saver leaves this until the earliest maturity date the capital is always returned in full. Savers can access their funds before the agreed maturity dates of their product, however if they do this they will not earn any interest and their capital may also be at risk if the index tracking their product is below the required minimum level stated.

Do structured deposits have the same protections as fixed term deposit accounts?

Like a fixed term deposit account, structured deposits are deposits, which means that your capital is protected. In the event that the deposit-taker is unable to meet its obligations, structured deposits qualify for the Financial Services Compensation Scheme protection of up to £85,000 per person, in the same way as your bank or building society account does.
However, as mentioned above, when you invest in a structured deposit, there is a risk that you may receive no interest at all. If that happens, you would have foregone the guaranteed rate of interest that a fixed term deposit account would have paid you.

What can be invested into a structured deposit?

Each product will have its own specific rules but in general these accounts will accept:
• Direct investments
• Cash ISA funds for the current tax year
• ISA transfers
• SIPP/SSAS pension arrangements
• Trustee, corporate, charity, offshore bond and nominee investments
• On behalf of a child

What is the FTSE 100?

The FTSE 100 Index is a widely used benchmark for the UK stock market. The Index measures the performance of the shares of the 100 largest companies listed on the London Stock Exchange. The FTSE 100 is an international index which includes HSBC, Vodafone, Royal Dutch Shell and GlaxoSmithKline.

Do structured products include derivatives?

This is a common misconception. Structured deposits are the same as fixed term deposit accounts, in that there is a legal obligation for the deposit-taking bank to pay you the interest rate that you signed up to dependant upon the performance of the relevant equity index. The deposit-taking bank will usually purchase derivatives themselves, in order to generate the interest that they owe you, but they don’t have to.
If the deposit-taking bank does purchase derivatives to generate the interest that they owe you, the derivatives belong to the deposit-taking bank, not to you as an investor.

Moneyfacts tip

Moneyfacts tip Leanne Macardle

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.

Are structured deposits protected?

Structured deposits are usually protected by the Financial Services Compensation Scheme. You should always check the product terms and conditions to make sure this is the case. This means, should the bank you invest with fail, you are eligible to claim up to £85,000 individually or £170,000 for joint accounts. This amount covers all the investments and deposits you hold with the bank. Our guide to the financial services compensation scheme has more information.

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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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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.

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