Structured Deposit
Structured Deposit Meaning:
In banking terminology, the term structured deposit refers to a type of financial account with funds placed into conventional fixed deposits with an investment on a derivative instrument on assets such as currencies, commodities, equities or bonds. The tenure of this product is generally between one and five years.
In banking terminology, the term structured deposit refers to a type of financial account with funds placed into conventional fixed deposits with an investment on a derivative instrument on assets such as currencies, commodities, equities or bonds. The tenure of this product is generally between one and five years.
For example, a structured deposit has a maturity date like a fixed deposit, but it is completely dependent on the performance of the underlying financial asset(s) for its investment return. The variable return is also usually dependent on a “cap” which limits the amount of the return or a “participation rate”, which specifies the percentage of the account that participates in the gains. For instance, the profit on a 2-year structured deposit of $100,000 with a 15% cap, and with the underlying asset gaining +25% at maturity, would be 15% or $15,000. If this product was instead subject to a participation rate of 50%, then the gain would be 25% x $50,000 (participating funds) = $12,500. While the underlying asset gained 25%, the return on the $100,000 at maturity would be 15% on the capped account and 12.5% on the account that was subject to a participation rate.