Structured Deposits

A structured deposit is essentially a combination of a deposit and an investment product, where the return is dependent on the performance of some underlying financial instrument such as Straits Times Index or other market indices, stock prices, interest rates, foreign exchange rates,bond prices and even credit-linked events,etc.

Pursuant to MAS's directives in Oct 2004, the term Deposit indicates that :
- the Capital deposited shall be returned upon maturity subject to credit risk;
- Cash shall be returned; and
- If the Bank recalls the structured deposit early, full capital in cash shall be returned to the depositors.

The structured deposit agreement entered before the directives might not enjoy the protection as above.

Example 1: OCBC 3-Year SGD FX-Linked Structured Deposit.
Characteristics:
i) A fixed interest of 1.80% p.a. is payable at the end of Year 1 and Year 2 respectively.
ii) For Year 3, an interest of 1.60% p.a. to 4.80% p.a. is payable depending on the Absolute Up-Down Months.
iii)Participate in the absolute performance of the USD/SGD Exchange Rate.
iv)100% principal protected by OCBC Bank if held to Maturity Date.
v)The effective rate of return is 1.73% p.a. under the worst case scenario.
vi)May achieve a higher rate of return than ordinary time deposit accounts and principal protection with a 3-year investment horizon.
vii)Minimum deposit of S$5,000

Eample 2:Maybank Inflation-Rider Structured Deposit
Characteristics:
i) Guaranteed returns on investment against the value erosion effects of inflation.
ii) 100% capital guarantee when held to maturity
iii)Minimum payout of 0.90% (0.51% p.a.) Maximum payout of 17.50% (10% p.a.)
iv) Short investment period of 21 months
v) Denominated in Singapore dollars - No foreign exchange risk
vi)Launch date: 28 August 08
vii) Closing Date: 15 Septemer 08
viii)Deposit Start Date: 18 September 08
ix)Deposit End Date: 18 June 10
x)The Maybank Inflation-Rider Structured Deposit is designed to allow investment returns to move in line with inflation.
xi) Returns investment are linked to the price movements of commodities. Be able to participate in the robust growth of commodities.
xii)Minimum placement of S$10,000
xiii)For individual - Must be at least 21 years of age
ixi)Institutions - No set criteria

Structured Deposit is facing Credit Risk in that if the bank collapsed, the deposit would be gone also. It does not help even when the Government on 16 Oct 08 announced its decision to provide 100% guaranttee (up from previously $20,000) for all deposits including S$ and foreign currencies [Max 120 billion from Reserve till 2011) . Structured deposits and structured products are not covered as these are created under Financial Advisers Act.

In certain structured deposits, the max return could be capped by Cap Rate or Particiaption rate or both, depending on the Agreement.
For example, the return could be 15%(Cap Rate)*40%(Particiaption rate-> Sharing rate)=6% eventhough the reference financial instrument has a 50% return.