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.