Funds held on deposit or Structured Product

Deposit accounts are low risk but also low return. Providers are now offering structured products to compete with bank deposit accounts, offering a higher return rate.

There are important differences so which one might be right for you? We asked David Clehane, Managing Director of Corporate Life, to share his insight.

What are funds on deposit? Who are they useful for?

Funds held in deposit accounts are typically held by banking institutions and Credit Unions. These funds are protected by the deposit guarantee scheme to a maximum of €100,000. There are two main types of deposit accounts: Fixed term and Variable.

Deposit account suit those clients who are risk averse. Unlike equity funds there is little to no risk on the client money, other than the risk of a bank collapsing – something that before 2008, was unthinkable!

Deposit rates are currently very low. While they are increasing slowly, they still represent a low return on investment. Directly as a result of the low interest rates over the last decade, a secondary market has appeared; that of the structured product.

What are structured products? What is their main advantage?

A number of providers have developed a product to compete with the bank deposit accounts. These offer a higher return than deposits – currently circa 3.5% per annum. But these are structured products and not deposit accounts.

They are all fixed term and are complex in nature – and they are not covered by the deposit guarantee scheme

The main advantage of the structured product fixed return offerings is that they provide a very good return with relatively low risk.

Is there anyone who shouldn’t consider structured products? What else should we know?

• They are not suitable for anyone who is unwilling or unable to tie up their money for a three or five year term.
• Talk to an expert before making any decisions. These products need consideration and financial consultation – they move fast and are only on the market for 3 months usually.
• These are not deposit accounts. They are relatively complex financial instruments. They have multiple moving parts that are not immediately obvious to the consumer.