Structured  Deposits  A   consumer’s   guide,   produced   jointly   by   TISA   and   the   UK  Structured  Products  Association.    You   may   have   heard   about   structured   deposits   from   your  financial  adviser  or  in  the  press,  and  be  wondering  whether  they  could  be  right   for  you.  This  guide  will  help  you  decide  whether  structured  deposits  could  fit   in  well  with  the  other   savings  you  have.    This  is  a  starting  point  only.  If  you  are  considering  putting  money  in   a   structured   deposit,   please   make   sure   you   read   and  understand   the   specific   literature   for   the   product.   And,   if   you  are  in  any  doubt,  you  should  speak  with  a  financial  adviser.  

 

 

What  are  structured  deposits?  You   may   already   be   familiar   with   a   cash   deposit  account  such  as  a  savings  account  you  might  hold  with  a   bank.     The   account   lets   you   deposit   and   withdraw  money,   and   your   bank   may   pay   you   interest   on   any  positive  balance  you  hold.    

A  structured  deposit  is  quite  different.  It  typically  offers  higher  potential  returns  than  a  cash  deposit,  but   it  also  involves   more   risk.   You   need   to   put   money   into   the  account   for   a   fixed  term   (typically  5  to  6  years).  At   the  end  of  this  time,  you  will  receive  your  initial  deposit  and  possibly   a   return.   Rather   than   simply   receiving   the  interest   that  most   cash   deposits   pay,   your   return  may  depend   on   the   performance   of   another   financial  variable,   such   as   the   inflation   rate,   company   shares   or  the  FTSE  100  Index.  

What  is  it?  A  fixed-­‐term  deposit  account  paying  a  return  linked  to  how  

another  financial  variable,  such  as  the  FTSE  100  Index,  

performs.    

Who  is  it  for?  Consumers  who  are  willing  to  

give  up  the  interest  on  a  standard  deposit  for  a  

potentially  higher  return  linked  to  the  relevant  

financial  variable.  Key  Features  

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All  structured  deposits  are  slightly  different,  but  please  read   about   the   following   features   that   they   have   in  common:  

They  are  meant  to  be  held  for  a  fixed  term  

Once  you  have  made  your  deposit,  you  will  not  be  able  to  add  more  money  during   the   fixed  term.  Equally,  you  will   be   expected   to   leave   your   deposit   in   the   account  until  the  end  of  the  fixed  term.  Most  structured  deposits  allow  you  to  withdraw  your  money  early  if  you  need  to,  but   this   could   mean   you   receive   a   lot   less   than   you  originally   put   in.   So   it   is   important   that   you   only   put  money   in  a   structured  deposit   if   you  are   confident  you  can  afford  to  keep   it   tied  up  for  the  full  fixed  term.  And  you  must  be  sure  you  are  comfortable  with  what  would  happen   if   you   needed   to   withdraw   your   money  unexpectedly  or  in  an  emergency.  

They  protect  against  negative  returns  

If  you  hold  a  structured  deposit  for  its  full  term,  you  may  receive   back   at   least   your   deposit,   regardless   of   what  happens  to  share  prices  or  interest  rates.  This  gives  you  less   exposure   to   stock   market   falls   than   if   you   were  holding  just  shares.  

They  may  be  covered  by  the  Financial  Services  Compensation  Scheme  

The  Financial   Services  Compensation  Scheme   (FSCS)   is  an   independent   body,   set   up   by   the   Government,   that  offers  compensation  when  you  lose  money  as  a  result  of  a   participating   financial   firm   (also   called   a  counterparty)  going  bankrupt.    

Deposits,  including  structured  deposits,  may  be  covered  

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by   the   scheme,   but   some   other   financial   products  (including   the   similarly   named   structured   investment  plans)  may  not  be.  This  means  that   if   the  bank  or  building  society  holding  your  structured  deposit  goes  bankrupt,  you  may  be  eligible   for  FSCS  compensation   if  it  is  a  member  of  the  FSCS.    

The   FSCS   scheme   protects  only   up   to   £85,000   of  deposits  for  each  person  with  an  eligible  financial  firm  or  any  group  it  may  belong  to  (see  also  ‘What  are  the  risks?’).  There  are  specific   rules   about   when   you   can   and   cannot   claim  compensation,   full   details   of   which   can   be   found   at  www.fscs.org.uk.  

Their  returns  can  be  tax  free  within  an  ISA    

The  return  you  receive  from  a  structured  deposit  is  subject  to   income   tax,   the   rate   of   which   will   depend   on   your  personal   status.   However,   many   structured   deposits   are  also   available   for   current   tax   year   ISA   subscriptions   or  transfer   of   previous   or   current   annual   ISA   allowances.   By  holding   your   structured   deposit   in   an   ISA   (up   to   your  annual  allowance),  you  will  not  need  to  pay  income  tax  on  any  returns,  if  you  are  eligible  to  subscribe  for  an  ISA.    

They  have  subscription  deadlines  

Structured   deposits   are   usually   only   available   during   a  specific  marketing  period  –  usually  6  to  8  weeks  long.  If  you  miss  the  deadline,  you  will  not  be  able  to  deposit.  However,  most   providers   will   offer   a   new   structured   deposit   with  similar  terms  soon  after.  The  returns  on  the  new  structured  deposit  may  be  different  from  the  previous  one,  depending  on  how  markets  have  moved  in  the  meantime.  

 

 

 

 

What  are  the  risks?  It   is   important   that   you   understand   the   risks   of   structured   deposits   before   deciding   to   put  money   in  one.  The  following   list  is  not  meant  to  be  complete,  so   if  you  are   in  any  doubt  as  to  whether  structured  deposits  are  right  for  you,  you  should  seek  financial  advice.  

You  must  be  prepared  to  leave  your  deposit  untouched  for  the  full  fixed  term  otherwise  you  may  get  back  less  than  you  put  in    

A   standard   cash   deposit   account   will   repay   your   deposit   in   full,   regardless   of   when   you  withdraw.   But   structured   deposits   are   different   because   their   value   during   the   fixed   term  depends   on  many   factors,   including   interest   rates,   the   creditworthiness   of   the   deposit-­‐taker  and   any   ups   and   downs   in   the   value   of   the   financial   variable   to   which   the   return   is   linked.  Obviously,  you  would  get  your  money  back  plus  the  potential  returns  if  you  held  your  deposit  until  maturity.  But  the  amount  you  would  get  back  if  you  needed  to  withdraw  early  may  vary  significantly.   And   some   structured   deposit   providers   may   also   charge   an   exit   fee   for   early  withdrawal.  

There  is  a  risk  that  you  will  receive  no  return  on  your  deposit  

For  example,  if  you  are  promised  a  return  linked  to  how  the  stock  market  performs,  and  it  falls  during  the  fixed  term,  then  your  return  could  be  zero  (assuming  there  is  no  minimum  return)  so  you  will  just  get  back  your  deposit.  In  this  case  you  would  have  been  better  off  putting  your  money  in  a  standard  deposit  account  paying  an  interest  rate.  You  must  be  comfortable  that  this  is   a   risk   you   are   willing   to   take,   and   that   receiving   no   interest   at   all   would   not   cause   you  financial  difficulties.  You  should  also   check  how  returns  are  calculated  over  the  period  of   the  product  and  whether  this  is  based  on  specific  points  in  time  or  averaged  over  the  whole  term  of  the  deposit.  

Inflation  could  erode  the  value  of  your  deposit    

Inflation  is  the  rise  in  the  price  of  goods  and  services  over  time.  It  means  that  your  money  will  be  able  to  buy   less   in  the   future  than   it  does  today.   If  you  were  to  put  money   in  a  structured  deposit   and   there  was  high   inflation  over   the   fixed   term,  your  deposit   at   the  end  of   the   term  would  be  worth  less  than  it  was  at  the  start  of  the  term.  Of  course,  this  risk  also  applies  to  any  savings  or  investment  product  that  is  not  inflation-­‐linked.  

There  are  limits  on  how  much  you  can  claim  under  the  FSCS    

If  the  bank  or  building  society  holding  your  structured  deposit  were  to  go  bankrupt  and  fail  to  fulfil   its   legal  obligation  to  return  your  deposit   in  full,  you  may  be  entitled  to  claim  under  the  FSCS,  as  explained  earlier.  However,  there  are  limits  on  how  much  you  can  claim.  For  deposits,  this  is  £85,000  per  person,  which  covers  all  deposits  (cash  and  structured)  that  you  hold  with  that  firm  and  with  that  firm’s  group  as  a  whole.  So  if  you  already  hold  £85,000  savings  with  a  bank   or   building   society,   and   then   buy   a   structured   deposit  with   the   same   bank   or   building  society,  or  a  bank  or  building  society  within  the  same  group,  you  would  only  be  able  to  claim  £85,000  in  total  should  it  go  bankrupt.  

 

 Main  Advantages  

• Potentially  higher  returns  than  can  be  achieved  with  standard  cash  deposit  accounts  

• Can  be  available  as  a  cash  ISA  • May  be  covered  by  the  FSCS  

Main  Things  to  Think  About  • You  must  be  prepared  to  tie  up  

your  money  for  the  full  term  • Inflation  is  a  risk  • You  cannot  add  to  your  deposit  

during  the  term  (although  you  can  open  a  new  one)  

• There  may  be  a  risk  that  you  receive  no  return  

 

 

 

Lorem  Ipsum  Dolor  [Street  Address]  [City],  [State]  [Postal  Code]  

[Web  Address]  

Consumer  checklist  

Counterparty  

Where   is   your  money   going   to   be   held?   Are   you  confident  about  the  ability  of  your  chosen  bank  or  building   society   to   return   your   deposit   in   full?  Check   whether   you   would   be   protected   by   the  FSCS  if  the  deposit  taker  goes  bankrupt.  

Before  deciding  to  put  money  in  a  structured  deposit,  check  that  you  have  CLEAR  answers   to   the   following   questions  about   the   risks   and   how   the  product  works.  

Length  

How  long  is   the  structured  deposit   term?  Are  you  happy   that   your   money   will   be   tied   up   for   this  period,  which  may  be  several  years?  Do  you  have  enough   for   other   needs   and   emergencies   during  the  term?  

Exposure  

What  is  the  structured  deposit  exposed,  or  linked,  to?  This  may  be  a  stock  market   index,  such  as  the  FTSE   100,   the   rate   of   inflation   or   some   other  variable.  Are  you  happy  that  your  returns  will  be  connected  to  something  else  in  this  way?  

Access  

What   happens   if   you   need   to   get   access   to   your  money   before   the   end   of   the   structured   deposit  term>  Will  you  get  your  full  deposit  back,  or  could  you  lose  some  or  it  and  if  so,  how  much?  Check  the  specific  terms  of  any  product  you  are  considering.  

Returns  

Do   you   understand   how   your   returns   or   interest  will   be   calculated?   A   structured   deposit   should  always   specify   this,   based   on   the   performance   of  the   variable   it   is   linked   to.  What   is   the  minimum  amount  you  could  receive  at  the  end  of  the  term?  

Structured   deposits   can   be   rewarding   for   people   who   understand  and  use   them  correctly  within   their  overall  portfolios.   If  you  are   in  any   doubt,   a   financial   adviser   should   be   able   to   talk   you   through  your  specific  circumstances  to  make  sure  they  are  right  for  you.  

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TISA  is  a  not-­‐for-­‐profit  membership  association  working  with  the  UK  retail  

financial  services  industry,  government  and  regulators  to  review,  

develop  and  implement  effective  policies,  regulations,  products,  advice  

and  services  thereby  encouraging  individuals  to  have  the  appropriate  savings  and  investments  to  support  them,  and  their  families,  throughout  

their  lives.  

   

 The  UK  Structured  Products  Association  (UKSPA)  was  established  by  the  leading  providers  of  structured  

solutions  to  UK  retail  customers  to  provide  a  source  of  information  and  

education  on  structured  products  and  deposits.