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Investment 101 – Understanding Structured Deposits

Understanding Structured Deposits

Key Insights

• The yield of a structured deposit typically relies on how an underlying fiscal tool performs.

• Should you retain your investment until its maturation and the banking institution stays financially sound, your entire original investment will be refunded.

What Exactly Are Structured Deposits?

Structured deposits merge traditional deposit capabilities with an investment component. The earnings from such deposits hinge on the performance of underlying financial elements, like market indices, stocks, interest rates, bonds, other stable-income securities, foreign currency exchange rates, or even a blend of these elements.

For investors seeking engagement with assets or markets usually beyond the reach of individual retail investors, structured deposits might be an appropriate option.

What Can You Expect in Returns?

The profits from a structured deposit are determined by a mathematical formula that’s specifically detailed in the deposit’s terms of service.

It’s essential to recognize that structured deposits aren’t the same as fixed deposits. Although structured deposits may offer the prospect of more substantial gains compared to fixed deposits, they do come with augmented risks. These risks include the potential of receiving a lower return than you might have anticipated.

Upon the structured deposit reaching maturity, you will be handed back the initial principal amount. However, it’s comparable to conventional deposits in the sense that both the return of the principal and any subsequent earnings are tied to the financial stability of the bank managing the deposit. An early withdrawal might result in not recovering the full amount you initially invested.

Types of Structured Deposits

Structured deposits are diverse and cater to different investment needs. Here’s a look at some of the various types available:

  1. Equity-Linked Structured Deposits:
  • These may be associated with the returns of individual shares, a collection of shares, a particular equity index (like the S&P 500), or multiple indices.
  1. Bond-Linked Structured Deposits:
  • These may be correlated with the return of individual bonds (such as Singapore Government Securities), a bundle of bonds, a specific bond index, or an assortment of bond indices.
  1. Interest Rate-Linked Structured Deposits:
  • These are usually tied to a defined floating interest rate (e.g., the Singapore Interbank Offer Rate).
  • The returns may be directly related to the named interest rate. For instance, if the interest rate increases, so do your returns, and vice versa. However, some products, known as “inverse floaters” or “reverse floaters,” work in the opposite way, where the returns improve if the interest rate declines and decrease if the interest rate grows.
  • There might also be provisions for payments to rise or “step up” at predetermined dates if the deposit isn’t redeemed by the issuer.
  1. Credit-Linked Structured Deposits:
  • These can be connected to the creditworthiness of a specific entity or multiple entities.
  • If a “credit event” occurs (for instance, if the specified entity becomes insolvent or fails to pay back its loans), the investor may end up without any returns.

Structured deposits may be made available in segments known as “tranches.” Each tranche generally comes with a designated offer period or remains open until all spots are taken. The features and returns can vary across different tranches.

By comprehending the array of structured deposits, investors can better tailor their investments to match their personal financial aspirations, risk preferences, and overall market perspective. Engaging with a financial expert is frequently recommended to ascertain that the chosen structured deposit aligns well with the investor’s specific financial needs and goals

Differences Between Structured Deposits and Fixed Deposits

Understanding the differences between structured deposits and fixed deposits is crucial when considering where to invest. Here’s a comparison that sheds light on the essential features of both options:

Structured Deposits Fixed Deposits
Minimum Deposit: Often requires a larger initial investment, commonly around $5,000. Minimum Deposit: Typically starts at a lower threshold, such as $1,000.
Maturity Period: Can range anywhere from 2 weeks up to 10 years. Maturity Period: Generally spans from 1 month to 3 years.
Principal: The original investment is fully refunded either at maturity or if the bank opts to redeem or “call” the deposit beforehand. Principal: The capital is repaid in full upon reaching maturity.
Returns: Possibility of higher returns compared to fixed deposits, although with increased exposure to risk. The yield is influenced by the underlying asset or index’s performance, a “cap” rate, and possibly a participation rate. Returns: Usually lower returns, with funds often placed in money markets temporarily, such as overnight.
Risks Involved: Greater risk due to dependency on other assets or indices. This may result in no returns, though the principal will be repaid at maturity. Callable deposits may expose you to reinvestment risks and the risk of the bank defaulting on payments. Risks Involved: Seen as low-risk since banks must repay the principal at maturity. Yet, depositors still face the risk of the bank failing to make payments.
Early Withdrawal by Depositor: Withdrawing before maturity might result in a loss of return and/or principal, depending on the market value of the linked asset or index. Some structured deposits may not offer immediate withdrawal options. Early Withdrawal by Depositor: Early withdrawal might lead to certain banking fees.
Early Redemption / Callable by Issuer (Variable Maturity): Banks may have the option to redeem the deposit early, capping maximum returns. Early Redemption / Callable by Issuer (Variable Maturity): Banks don’t typically redeem fixed deposits early.
Covered by the Deposit Insurance Scheme? No Covered by the Deposit Insurance Scheme? Yes
Guaranteed Payments: Some structured deposits may offer higher guaranteed payments in the initial phase compared to fixed deposits. These payments could vary later on. Guaranteed Payments: The interest is guaranteed and remains constant throughout the fixed deposit’s term, barring early withdrawal.

Structured deposits might attract those seeking potentially higher returns and are comfortable with more considerable risks. On the other hand, fixed deposits appeal to those preferring stability and a more secure investment, albeit possibly with lower returns. Understanding these distinctions can guide investment decisions that align with individual financial goals and risk tolerance.

What’s the Maximum You Could Lose?

The potential loss in a structured deposit varies and might include some or all of the return, based on how the return is organized and the performance of the underlying financial asset, product, or benchmark. The principal amount invested is also tethered to the credit stability of the bank where your structured deposit resides. If you opt for an early withdrawal, the full recovery of the principal isn’t guaranteed, and you may end up receiving less than what you initially invested.

Are Structured Deposits Right for You?

Structured deposits aren’t suitable for every investor. To determine whether this investment option aligns with your financial goals, consider if you:

  • Desire Higher Earnings but Accept Variable Returns: If you’re pursuing potentially greater yields but are ready to handle fluctuating returns, structured deposits might be an avenue to explore.
  • Comprehend How Returns Are Derived: Understanding how returns are calculated, along with the factors and conditions that may influence them, is vital when investing in structured deposits.
  • Acknowledge the Associated Risks: Structured deposits employ derivatives for risk mitigation and performance enhancement. Being aware of risks tied to derivatives, such as default by the provider or counterparty, is a must.
  • Can Commit to the Required Investment Period: If your financial situation demands short-term liquidation for unexpected needs, a structured deposit might not be the ideal investment option for you.
  • Feel At Ease with the Bank’s Credit Risk: Confidence in the bank’s financial stability is essential, as a default by the bank could mean losing your entire investment.

Structured deposits may offer promising returns but come with higher risks and intricacies. Thoroughly understanding these aspects and aligning them with your financial needs and risk appetite is essential before considering this investment avenue. If you’re uncertain, seeking professional financial advice might be a wise step.

What Are the Risks?

Structured deposits carry various risks that you should be aware of as an investor:

  1. Withdrawal Before Maturity Date:
  • Ending the investment before its maturity date could lead to significant losses to your principal.
  • Structured deposits might undergo periodic valuation, not necessarily daily. This could mean you may not be able to access your deposit right away if needed.
  • It’s advisable to review the bank’s terms and conditions concerning early withdrawal of the deposit.
  1. Credit Risk:
  • If the bank holding your structured deposit defaults, you may end up losing your entire investment.
  1. Reinvestment Risk:
  • In cases where the structured deposit is callable, you might face the risk of having to put your money back into investments at rates that are less appealing.
  1. Lack of Deposit Insurance:
  • Structured deposits are excluded from coverage under the Deposit Insurance Scheme and Policy Owners’ Protection Scheme. More information can be found on the Singapore Deposit Insurance Corporation Limited (SDIC)’s website.

Risks of Different Types of Structured Deposits:

Various structured deposits come with specific risks related to their nature. Make sure to understand the details before committing.

Fees and Charges:

Consult with your bank about potential fees associated with the structured deposit. Be aware that making an early withdrawal may lead to transaction or unwinding costs, possibly reducing your returns.

Being mindful of these risks and aligning them with your investment strategy is crucial. Thoroughly reviewing the details and possibly consulting with financial experts can help you make an informed decision that matches your financial goals and risk appetite.

Before You Buy: Essential Considerations

Selecting a structured deposit demands careful thought and alignment with your personal investment strategy. Here’s what you should ensure:

  • Alignment with Investment Goals: Make sure that investing in the particular structured deposit resonates with your specific investment objectives.
  • Understanding of Return Factors: Have a clear grasp of what will affect your returns. Are you knowledgeable about the underlying financial asset, product, or benchmark? Assess if you’re at ease with the exposure and the market position you’re adopting.
  • Risk Compatibility: Fully understand the associated risks and determine whether they align with your personal risk profile.
  • Comfort with Credit Risk: Be certain that you’re content with the credit risk involved with the bank where you’re depositing your money.

It’s also wise to explore other investment products and compare their risk-return characteristics and features with the structured product being presented to you. Always question whether incorporating this product into your investment portfolio could lead you into taking on more risk than you find acceptable.

In essence, the decision to invest in a structured deposit should be thoroughly researched and should match your financial goals, risk tolerance, and understanding of the product. Seeking professional financial advice might also be beneficial to navigate the complexities and to ensure that the investment is a suitable match for your overall financial plan.


Structured deposits offer an intriguing avenue for investment, bridging traditional deposit safety with potential investment opportunities. They might serve those looking for greater exposure to various financial instruments and the possibility of higher returns. However, understanding the risks involved, the link between returns and underlying asset performance, and the importance of holding to maturity is crucial. It’s wise to thoroughly study the terms and consult with a financial advisor to ensure that structured deposits align with your investment goals and risk tolerance.

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