Structured products are financial products that you put money into for a set amount of time and in return you gain either growth or income on your money or both. Structured products are far more complicated than they seem and if you are stuck knowing if they are right type of financial product for you.
There are also important things to bear in mind with regards to the type of structured product you are looking for – If you are looking to take out a structured deposit, don’t pick a structured investment thinking that they are the same thing.
The Difference Between Structured Deposits and Investments
Structured Deposits – These are basically a special type of savings account offered by the National Savings and Investments, building societies and banks. The difference between this and a normal saving account is that the interest rate you receive on your money depends on how something performs such as the stock market indexes.
Normally if the stock exchange index falls your account will earn no interest. But a major difference between these types of structured product with structured investments is that the original money you invest is protected, as it is with a normal savings account, regardless of what happens to the stock market index.
Structured Investments – This is a type of product offered by banks and insurance companies in which your money is put into two different investments. One is to provide the bonus, while the other protects your capital. Like with structured notes, your return depends on the stock market index or some other measure and how well or badly it performs. The difference is that if the measure performs badly or the companies that provide the two different investments you could stand to lose some, and in some cases, all of the money you originally invested.
Different companies use different names for these products such as:
-Guaranteed Income Bonds
-Protected Investment Funds
-Guaranteed Stock market Funds
-Guaranteed Capital Plans
-Growth Deposit Plans
-Structured Cash ISAs
-Guaranteed Equity Bonds
The main benefit of structured deposits is that they enable you to get a stock market return without risking your money in the way you would if you invest directly into stocks and shares. Bear in mind though that you could get much less interest on your money than you would with a bog standard savings account through your bank account and in the worst case scenario you may get no interest at all. It is also worth keeping in mind also that if you invested the money into stocks or shares instead you may possibly gain from an increase in the share prices or stock market index as its also known and you may also get income as dividend payments as well.
Although there is more risk with structured investments or structured notes as they are also known, the return may be much higher. For instance if the FTSE 100 is higher at the end of 5 years than it was at the beginning when you took the investment out with £1000, you could potentially get an extra 30% on top of the your original investment. As mentioned early it is vital that you speak to a financial expert about these types of products to get a sense of which is best for your needs and requirements.