A structured deposit acts both as a deposit as well as an investment product. Returns from a structured deposits will be determined based on how an underlying financial instrument or product has performed. These financial tools comprise equities, market indices, fixed-income tools, foreign exchange, interest rates, or a merger of all these.
A fixed deposit is also called as a term deposit or time deposit. It is one of the safest ways to invest your money because your returns are guaranteed. In order to invest in a fixed deposit, you need to meet a minimum balance requirement. The minimum balance amount varies from bank to bank and also depends on the interest rate and the currency you choose.
Difference between fixed deposits and structured deposits
The basic differences between a structured deposit and a term deposit are listed below:
- Early withdrawal options
- Minimum deposit amount
- Insurance coverage
In a structured deposit, your principal will be paid to you in full once your deposit matures. In case you choose to withdraw before the maturity period, your complete principal amount will be taken by the bank. For a term deposit, your principal will be paid in full at the time of maturity.
When compared to a fixed deposit, structured deposits earn you higher returns. However, in order to earn higher returns, the risk factor you need to bear is a bit higher too. This is because returns from a structured deposit are completely based on how your underlying financial tool that is linked to your deposit performs.
On the contrary, the returns from a term deposit are assured. The risk involved in a fixed deposit is lower because your investment is only for a short period of time. The deposits are also protected (up to S$50,000 per person) under the Deposit Insurance Scheme.
In a term deposit, penalties are applicable when you want to withdraw your deposit amount before maturity. On the other hand, when you withdraw your structured deposit before the maturity period, you might end up losing a part of your principal or return. The amount payable to you will be finalised based on the market value of the financial product your deposit is linked to. However, this cannot be predetermined.
Compared with a term deposit account, structured deposits require a higher minimum investment amount. For most banks in Singapore, time deposits usually start at S$1,000. The minimum placement amount for structured deposits is generally S$5,000.
The Deposit Insurance Scheme does not insure structured deposits as per the Deposit Insurance Act 2005. However, term deposits are insured under this scheme.
Both fixed and structured deposits are great investment options. Choose one of them based on your specific financial requirements. Irrespective of whether you choose to invest in a fixed deposit or a structured deposit, always make sure to go through the terms and conditions of the product carefully.