• Fixed Deposits vs Structured Deposits

    What is a Structured Deposit?

    A structured deposit is a combination of a fixed deposit and an investment product, where some underlying financial instruments’ performance determines your return. Underlying financial instruments may include interest rates, bonds, market indices, or other fixed-income securities, foreign exchange rates, shares, or combinations of any of these.

    What is a Fixed Deposit?

    A fixed deposit (also known as a time deposit) is a type of savings tool. A fixed rate of interest is granted if you agree not to withdraw or access your funds for a fixed period of time. Interest payments are made out at regular intervals during the duration of the tenor. It is because liquidity is foregone, that the bank can offer a more favorable interest rate than a basic savings account.

    What Are the Key Differences Between the Two?

    1. Features
    2. Structured deposits have features of both a fixed deposit account and an investment product. You can put a portion of your savings into the account for a fixed tenure, and in return for having promised to not touch it, you can earn higher rates of interest than a fixed deposit. This is especially since your deposit will be invested into financial markets and act as an investment product with high-yield returns, should the market and underlying financial instruments perform well.

      Fixed deposits are a type of savings tool with no investment in financial markets involved. Thus, they tend to have lower yield returns than structured deposits, but higher yields than traditional savings accounts.

    3. Benefits
    4. Retail investors, or those who invest for their personal gain and not on behalf of a corporation, gain exposure to markets and assets that are not readily accessible to them otherwise. This means that, depending on favorable market fluctuations, returns tend to be high-yield.

      Fixed deposits have guaranteed returns. You have no access to high-yield returns (greater than the designated interest you can accrue) because you are not taking any risks on your part in terms of market speculation.

    5. Risks
    6. Structured deposits require low to medium risk tolerance. They are considered less risky investments than direct investments in assets that can be traded (stocks, bonds, etc.) This is because the principal amount initially deposited in the account will be returned at maturity. Additionally, overall market risks are minimised by being diversified over multiple financial instruments - which improves the returns on the entire portfolio.

      Fixed deposits require minimal risk tolerance. They are considered less risky than structured deposits since no volatility from financial markets is involved. The principal amount will also be returned at maturity, making it a safe bet.

    7. Returns
    8. Structured deposits earn variable returns since they depend entirely on your chosen instruments’ performance in the market. This means that you could lose some or all your returns if the market tanks.

      Fixed deposit returns tend to be lower than that of structured deposits, but higher than that which you would get from regular savings accounts. Also, returns are guaranteed. There is no degree of uncertainty involved in investing in a fixed deposit, since it does not rely on the market’s performance. Thus, you face zero risks in terms of receiving returns on your investment.

    9. Minimum deposit
    10. Structured deposits have minimum deposit amounts that vary between banks, however, most require a deposit of S$5,000 or above. The reason behind this is because investing in financial markets requires considerable capital to secure high-yield returns. Fixed deposits require a minimum principal amount of S$1,000, or sometimes lower. The reason why structured deposits require higher deposit amounts is because they are also investment accounts.

    11. Principal
    12. The principal for structured deposits may be returned in full, provided the account is not closed prior to the maturity date. Should the account be pre-terminated, you may get less than 100% of the principal amount. In addition to that, should the bank become insolvent, you will lose your full principal amount.

      The principal for fixed deposits will be returned in full, regardless of whether your account is pre-terminated or not. However, early termination charges may apply. Should the bank go bankrupt, you may still get 100% of the principal returned to you as Singapore dollar fixed deposits are protected under the Deposit Insurance Scheme.

    13. Liquidity
    14. Structured deposits have limited liquidity because they are subject to periodic, and not daily, valuation. This means you will find it difficult to both withdraw and convert your deposited amount into cash in the short-term.

      Fixed deposits are highly liquid assets since they can be dissolved and the cash used almost immediately. However, this may mean you will have to forfeit the interest - either in part or completely since interest cannot be charged on a partially deposited amount.

    15. Early redemption
    16. The principal of structured deposits will be returned in full if the bank “calls” your investment. If it is called, your full initial investment will be returned to you before the tenure has ended. This is done to cap the maximum returns you earn on the investment.

      Fixed deposits are not callable prior to the maturity date - since no financial market returns are implied.

    17. Maturity
    18. Structured deposits tenures range anywhere from 2 weeks to 10 years. You may not be able to use your money for any other purposes during this entire period.

      Fixed deposits tenures are shorter and range from 1 month to a maximum of 5 years. These deposits will have shorter tenures in comparison since structured deposits rely on long tenures to provide higher rates of return on investments.

    19. Early withdrawal
    20. Pre-terminating your structured deposit will result in losing some, or all, of your returns and you may not get 100% of your principal back. This is because the bank will have to cover their losses in losing your investment - which, until your withdrawal, was secure.

      Pre-terminating your fixed deposit may result in early withdrawal charges given your bank may have taken a similar commitment with a counterparty on your deposited amount. Charging you early termination fees may be justified to cover the cost of its own commitment. However, you will get 100% of your principal back - which makes it a low-risk investment.

    21. Collateral
    22. Structured deposits may not be used as collateral for additional credit facilities since they are an investment product primarily, and do not have guaranteed returns. The degree of uncertainty inherent with this deposit means it cannot act as a secure asset the bank can take possession of should you default on your financial obligations.

      Fixed deposits may be used as collateral for additional lines of credit like credit cards, loans, etc. This is because the principal remains stable throughout the tenure with no uncertainty inherent in the way it is structured, seeing as it is not subject to market fluctuations.

    23. Deposit Insurance Scheme
    24. Structured deposit accounts are not insured under this scheme. This means you can stand to lose your entire investment and principal amount should the financial institution you are dealing with go bankrupt.

      Fixed deposits are insured under this scheme. This means that all your eligible accounts are aggregated and insured up to S$50,000. Structured deposits: Best for those looking for high-yield returns. Fixed deposits: Best for those looking for guaranteed returns.

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