Glossary · UK
What is Structured Deposit?
A savings product that protects the original capital deposited while linking any additional return to the performance of a stock market index, in exchange for giving up a guaranteed fixed interest rate.
Full Definition
A structured deposit is a savings product, usually offered by a bank or building society for a fixed term of several years, that guarantees the return of the original capital deposited at maturity (provided the institution itself does not fail) while linking any additional growth to the performance of a specified stock market index, such as the FTSE 100, over the term, rather than paying a fixed, guaranteed interest rate throughout. If the linked index rises over the term, the saver typically receives a proportion of that growth (often capped at a maximum return, or subject to an averaging mechanism that smooths out the final value), but if the index falls or stays flat, the saver commonly receives no growth at all -- though, unlike a direct stock market investment, the original capital is still returned in full at maturity under most standard structured deposit terms. Structured deposits are often confused with structured investment products, which work on a similar principle but do not guarantee the return of capital and carry genuine risk of capital loss, so savers need to check carefully which type of product they are being offered, since the two carry materially different risk profiles despite sounding similar. Because the capital-protected version is technically a deposit rather than an investment, it is normally covered by the Financial Services Compensation Scheme up to the usual GBP 85,000 limit per person per institution, but the opportunity cost of tying up money for several years with no fixed guaranteed return, and no access to the growth beyond any cap, means structured deposits suit savers who specifically want the security of capital protection but are willing to give up a guaranteed interest rate to chase potential stock market-linked upside.