MONEY | STRUCTURED DEPOSITS STRUCTURED DEPOSITS | MONEY Suisse Super Tracker Bond sold by In fact, if inflation averages 3% over Allen, Skipton BS and Yorkshire BS. Skipton BS, offering a maximum the next six years, you’ll need almost Some 83%, 77% and 63%, respectively, return of 40% over six years, equivalent £12,000 to buy what you could buy for found it either difficult or very difficult to 5.77% a year. The best five-year £10,000 today. And if inflation rose to understand how the product works, fixed-rate savings bond (the nearest significantly more over the next few years, while almost as many found it difficult Not so simple equivalent time-wise) currently pays your money would be worth a lot less. to work out the minimum and 3.17% a year – so if the Credit Suisse This is the key problem with maximum possible returns. bond delivers its maximum return, structured deposits. Although they may you’ll do considerably better than give you the impression that you can’t lose HOW DID THEY PERFORM? you would have done in the bank. out, they blur the lines between saving To test how a selection of structured If, however, the stock market performs and investing, giving investors the deposits would have performed if savings badly, the structured deposit pays no impression that they are a risk-free way they’d been available in previous years, interest at all. So you have to weigh up of accessing the stock market. In reality, we analysed the performance of the whether the possibility of earning an they do present a real risk to your FTSE 100 every day for the past five, 10 Disappointed with bank savings rates but wary of investing in an unpredictable extra 2.6% of interest is worth the risk money, and they’re also very inflexible. and 28 years (which is when the FTSE stock market? We investigate products that claim to offer a third way of losing the 3.17% that you’d receive 100 was launched), calculating how if you simply put your money in a STRUCTURED CONFUSION often the structured deposits would five-year fixed-rate savings account. Which? experts found structured have paid the minimum and maximum tock market investment can be a 10 years, while Cater Allen’s would have The crucial thing to remember is that deposits complicated products to return, and the average return over risky business. If things go your achieved this in only 1% of cases. AT A GLANCE even if you get all your initial investment understand, so it’s no surprise that they each period. Sway, you can make a much better Furthermore, none of the products we back, you’ll have still lost money. Once also baffle potential investors. In October, The Santander Stockmarket Linked return than with a bank. But if looked at produced an average annual Structured deposit schemes aim to offer stock inflation has eaten away at your cash, we showed an online panel of 1,321 Savings Bond (Issue 26) offers a confidence evaporates, your money can return above what you could have market-linked returns without risk to your capital £10,000 will be worth much less in Which? members the websites of three maximum return of half the growth too. But what if there was a way of earned in a fixed-rate savings account Which? finds they very rarely pay out enough six years’ time than it is today. structured deposit providers – Cater in the FTSE 100 index, subject to an getting the benefits of any stock market over the same period. So while a few interest to beat a Best Rate fixed-rate bond gains without being exposed to the lucky investors will have beaten the Poor returns could even devalue your capital losses if things go wrong? bank, the vast majority wouldn’t have. in real terms. Which? calls for regulation. That’s the idea behind ‘structured Alternatives deposits’ – often also called stock WHAT ARE THEY? market-linked savings or capital- Rather than offering a set interest rate to structured protected bonds – that aim to let you on your money, structured deposits pay deposit schemes have your cake and eat it. If the markets you a rate of return that is tied to the rise while your money is invested, increase in a particular stock market, If you’re looking for a fixed return typically over a five or six-year period, such as the FTSE 100, over a set period. on your savings and want to beat you’ll reap some, or all, of the benefit. They’re offered by a variety of providers, the 2.4% on offer from an instant- And if stock markets fall, you won’t lose from the Credit Suisse products sold access account, you could consider any of the investment you started with. by building societies to accounts from a fixed-rate bond or cash Isa. The Sound too good to be true? That’s banks and specialist providers, such as rates paid on these accounts have because, in many cases, it is. While Investec and Cater Allen (Santander’s dropped in recent months, so it these products have become all the rage private banking arm). may be wise to lock your money over the past few years, being sold by a Each structured deposit is different, in for a shorter period than five number of big-name banks and so it can be hard to make like-for-like years. The best three-year building societies (such as Royal Bank comparisons. In most cases, if the fixed-rate deal, for example, of Scotland and Santander), few of them relevant stock market index rises pays 3.3%. stood up to scrutiny when our experts you’ll earn some or all of that growth. If you want a degree of put them to the test. But some products apply a cap to the exposure to stock markets, We looked at a range of recently maximum return you can earn, while you could put some of your marketed FTSE 100-linked savings others pay the full growth. Similarly, money into a low-cost tracker products, to see how they would have some offer you a minimum return if fund. While your capital is at risk performed over the past five and 10 the underlying index falls, while others when investing directly, you can years – and most came up woefully simply pay you your money back but reduce this risk by choosing a short (see chart, p46). One Santander not a penny more. Santander, for fund with a higher proportion account would not have paid out the example, pays a minimum 2.06% of cash- and fixed-interest-based PHOTOGRAPHY B PHOTOGRAPHY maximum advertised return on a single return, but Cater Allen, Investec and investments. Read ‘The best occasion in the past decade, and would RBS only return your initial deposit ways to invest £10,000’ (Which?, have just paid out the minimum return with no interest. September 2012, p62), visit Y : DEREK BACON www.which.co.uk/modelportfolios in 94% of cases. If you’re thinking of putting money XXXX X XXXXXX : Y We found a similar story with Legal into a structured deposit, either directly for more details, or call the & General and Cater Allen. The L&G or within a cash Isa, you need to decide Which? Money Helpline on product wouldn’t have paid out the whether the potential benefits outweigh 01992 822848. PHOTOGRAPHY B maximum return at all over the past the risks. Take, for example, the Credit 44 WHICH? JANUARY 2013 www.which.co.uk www.which.co.uk JANUARY 2013 WHICH? 45 MONEY | STRUCTURED DEPOSITS STRUCTURED DEPOSITS | MONEY overall cap of 50% over six years, or the past 10 years, and in 90% of periods have been lower than the average slightly better over the past five years. a higher upper ceiling risk giving the EXpert VIEW 6.99% a year. But our analysis shows during the past five years. return for those investing in the But over the same period you could impression that savers are likely to Better off in savings that this product would never have paid Other products would have paid out Santander product due to the zero have earned more on a fixed-rate receive this rate. However, our testing Martyn Saville | Money expert out the maximum in any period over the maximum more often. For example, return paid if the FTSE 100 falls. five-year bond. While today it is 3.17%, shows that some products would have [email protected] the past five or 10 years. Even if you Investec’s 3-year Deposit Plan 37 would But these are not the lowest-paying in November 2007 Halifax was offering paid out the maximum return in less include the performance of the FTSE have paid the maximum 38% of the products. Over the past decade, the 6.2% AER on its five-year bond, than 1% of periods over the past decade. Structured deposits 100 all the way back to April 1984, time over the past decade. However, structured deposits from Royal Bank guaranteed for the full term. deliberately blur the including the stock market boom of the with this product the bar is set lower – of Scotland and Cater Allen would have Fixed end dates Structured deposits lines between early 1990s, you would have had just a its maximum return of 15% (or 4.77% paid an average annual return of just SAVINGS PROTECTION have a fixed end date.