Structured deposits typically offer returns that are potentially higher than those on traditional fixed deposits. A structured deposit is a combination of a deposit and an investment product, where the return is dependent on the performance of some underlying financial instruments. These include market indexes, equities, interest rates, fixed-income instruments, foreign exchange, or a combination of these.
Why is it important?
If the underlying instrument does not perform in the direction you have anticipated, your returns could be zero.
Investors should note that the issuer is obligated to repay the principal in full only upon the maturity of the structured deposit. However, if you choose to redeem your investment earlier, you may lose a substantial portion of the principal invested. The amount payable will depend on the market value of the underlying financial instrument that the structured deposit is linked to, which cannot be pre-determined.
Do not be lured by promises of returns alone. Find out how the product works, what is guaranteed and what is not, what affects the returns and what the risks are. Ask what is payable in the worst-case scenario.
So you want to use the term. Just say...
'My adviser said I should try to understand the underlying financial instruments in a structured deposit.'
Source: MoneySENSE, the national financial education programme
