A structured deposit is a bank deposit with a fixed term. Structured deposits differ from conventional fixed deposits in that they do not have fixed interest rates and interest is no guaranteed by a bank. Instead, the yields of structured deposits depend on the performance of one or more underlying assets.
Additional criteria may apply. For example, a structured deposit may have a limit on the yields which can be earned, or yields may be based on a portion of the deposit rather than the full deposit. The terms and conditions of structured notes can vary hugely, so each offer has to be examined carefully before deposits are made.
Structured deposits come with limitations which are not present in retail trading (using online brokers, for example). In some cases, they can provide a means of participating in the performance of investments which are only available to that specific bank. However, it is rare for a bank to have access to profitable investments which are not available to other institutions or to retail investors.
The risks of structured deposits are:
Yields are not guaranteed. If the underlying asset does not gain in value over the structured deposit term, you do not earn a yield.
Depending on the terms and conditions of a structured deposit, your deposit balance may be directly linked to the value of the underlying asset. If the value of the underlying asset falls over the deposit term, a capital loss results.
Your deposit balance is guaranteed by a bank. If the bank goes bankrupt, you are at risk of losing your deposit balance.
Structured deposits fall under the broader category of structured products.
More on this topic:
Swiss fixed deposit comparison
Online trading comparison
