Structured deposits are a combination of a time deposit and equity.
Deposits in which the parties agree that the return on the deposit will be linked over a certain period of time to the performance of stock market indices or a basket of shares.
These types of deposits are designed for investors with some degree of financial knowledge. While it is possible to obtain higher returns than with a term deposit, these returns can vary and you never know what you will earn until you see the performance of the underlying assets in which you are investing.
The main characteristics of this type of deposit are as follows:
- Returns can vary and there is no way of knowing how much it will be, since the underlying assets to which the deposit is pegged are variable. However, banks almost always provide ranges within which these returns typically oscillate.
- While the invested capital is guaranteed at maturity, there is no guarantee as to the interest that will accrue over the investment period. These are mid- to long-term investments.
- These deposits cannot normally be cancelled ahead of time without incurring a penalty in the process, so it is important to be sure that we will not be needing the money over the agreed duration of the deposit.
- Depending on the country, structured deposits are subject to different rules when it comes to taxation and other legal concerns .
Ultimately, it is about understanding the risks and knowing why the securities to which the deposit is linked can fluctuate in response to a range of different factors.
It is important to read the contract to find out what will happen if we want to exit the investment ahead of time.