Structured product plans contain many different options, but how do these structured products compare to one another?
So, when you get down to it and compare structured products against one another you find that there are two main types, Structured Deposits (deposit based) and Structured Investments (capital-at-risk). They are in fact both named structured products, even though they differ somewhat, and it can sometimes be confusing. For this reason, we have decided to help you compare structured products by looking at the differences between them.
The Types of Structured Products
Here’s a brief look at how the different types of structured products compare to one another.
Structured deposits are a kind of mixture between a savings account and an investment. This type of structured product sets the majority of your money aside for protection. The remaining amount is then invested. This offers a higher potential for return than if you placed your money in a savings account. Classed as a low-medium risk, the only way you can lose money is if the counterparty/deposit taker becomes solvent. But even in this situation, you may be able to receive compensation for any loses from the FSCS.
Also known as capital-at-risk, structured investments offer a higher potential for return as all of your money is invested. Structured investments link to an investment index (often the FTSE 100, but not always). If the investment index performs well over your investment term, you will achieve a return. However, you could lose money if the investment index falls by 50% or more. Structured investments are higher risk than structured deposits but typically offer higher returns.
Kick Out Plans
A structured product Kick Out Plan allows you to take your money out early if it performs well. Usually, you will be able to kick out the plan after year two on an agreed anniversary date. This is a popular type of plan, as the typical structured product investment term is 3-10 years. Additionally, kick out plans stipulate various conditions in which the product will kick out and repay your investment.
Contingent Income Plans
Contingent income plans offer the potential of monthly repayment from your investment. You will receive a payment if the closing level of the index is an agreed percentage higher than its opening level. This plan links with an investment index, like the FTSE 100.
Compare Structured Products: Deposits and Investments
Structured deposits and structured investments are the two main types of structured products. Kick out plans and contingent income plans are just additional factors to compare after you have chosen between a deposit based or capital at risk plan. However, the differences in the plans should be the main point of comparison.
Therefore, we’ve put together a breakdown of the main components of these plans for you.
Structured Deposits: Key Points
- 3-10 year investment term
- The majority of your capital is set aside for protection
- That money stays with a deposit taker or counterparty
- The remaining money is used for investing
- Low-medium risk
- Higher return potential than a savings account
- Depending on your plan, there could be an option for early maturity
- Money at risk if counterparty/deposit taker becomes solvent
- May not get any return if inflation affects the money
- The FCSC may be able to provide compensation if the deposit taker becomes bankrupt
Structured Investments: Key Points
- 3-10 year investment term
- Follows an investment index like the FTSE 100
- Medium risk
- Higher potential for return that a structured deposit
- Many plans offer the option of early maturity
- You will receive a lump sum if the investment index is higher than the opening level upon maturity
- If the investment index is 50% lower than the opening level upon maturity, you will lose money
- Many companies offer capital protection for this type of investment
- Finally, your money is entirely dependent on the investment index
We hope this article has provided you with a better understanding of how to compare structured products. Every plan has different benefits and risks and it is vital you understand this prior to investing. You can browse our full range of structured products here.
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