Structured Deposit
Also known as: Market-linked deposit, Equity-linked deposit, Guaranteed growth bond
A deposit whose interest depends on a market. Capital protected by the bank, upside capped by the option budget — and the budget is smaller than the brochure suggests.
- Asset class
- Money markets (structured bank deposit)
- Instrument type
- Deposit + embedded option
- Traded
- Not traded — held to maturity with one bank
- Typical users
- Retail savers seeking upside without nominal loss
1 · SnapshotThe one idea to remember
2 · BeginnerWhat is it, really?
A structured deposit pays no fixed interest. Instead, it returns your money at maturity plus a payment linked to something else — an equity index, a basket, a currency pair. If the market falls, you get your money back and nothing more.
It is built from two ordinary pieces:
- A zero-coupon deposit that grows back to 100% of your capital by maturity. This is what "capital protected" means.
- An option, bought with whatever is left over, that delivers the market-linked payment.
The arithmetic is unforgiving and completely public. At 4% rates over five years, about 82 cents of every euro must be set aside to grow back to 100. The remaining 18 cents — minus the bank's margin — is the entire option budget. That budget is why the participation rate is 50%, or the cap is 30%, rather than the full index return.
3 · IntermediateHow it works in practice
The three levers, and how they trade against each other
- Participation rate — the share of the index gain you receive. 60% participation means a 20% index rise pays 12%.
- Cap — the maximum payment, whatever the index does. Selling away the tail is what funds a higher participation rate.
- Averaging — the final level is often an average of monthly observations rather than the closing level. This is a genuine cost, not a technicality: averaging cuts effective volatility and therefore the option's value, and it turns a strong final year into a mediocre average.
What the protection actually protects against
| Risk | Covered? |
|---|---|
| Market falls | Yes — nominal capital returned |
| Bank fails | Only up to the deposit insurance limit |
| Inflation | No — protection is nominal, never real |
| Needing the money early | No — exit is at the bank's discretion and price |
The opportunity cost nobody prints
The honest comparison is never "structured deposit versus losing money". It is "structured deposit versus the fixed-term deposit you could have had". If a plain 5-year deposit pays 4% and the structured version pays zero in a flat market, the flat-market outcome cost you roughly 22% of compounded interest.
4 · AdvancedPricing & valuation
Decomposing the price
Value the two pieces separately and the margin appears:
- Price the call spread yourself with the Black–Scholes pricer or the strategy builder, subtract from 100, and the difference against the discounted principal is the issuer's margin. It is typically 1.5–4% of notional, taken up front.
- Dividends are the silent contributor. Most structures reference a price index, so the underlying's dividend yield accrues to the option seller, not to you. Over five years at a 2.5% yield that is roughly 13% of index return that never enters the calculation.
When these products get built
Issuance is a function of the option budget, which is a function of rates. Near-zero rates leave no budget, so structures shift to worse terms, longer maturities or conditional protection (which is not protection at all). Higher rates make genuine capital protection cheap again — and, not coincidentally, make the plain deposit a stronger competitor.
Regulatory position
In most jurisdictions a structured deposit keeps deposit-insurance eligibility on the principal while attracting disclosure rules closer to investment products — a key-information document, cost disclosure and performance scenarios. That is a genuinely different footing from a structured note, which is unsecured issuer debt with no insurance at all.
The formulas above are standard textbook formulations, simplified for teaching. They explain the mechanism — they are not a valuation tool, and they will not reproduce a dealer’s price.