Customised Deposits


Active member
Hi All

I recently asked for some investment advice from my bank. My criteria was that any investment must guarantee a capital sum. They came back with the idea of customised deposits. Each deposit is tied to a specific trading strategy which if it reaches a specified target gives a guaranteed return on the investment or if it doesn't reach the target it just returns the initial capital. Four of the ideas they had were:

1) Gold Appreciation Strategy - on a weak dollar, political instability and positive investor sentiment gold expected to perform well. Target: If 4.09% higher in 12 months then will guarantee a return of 8%(AER).

2) Europe and US Equity Strategy - economic recovery leads to higher stock markets. Target: if any growth between 0 - 20% in the next 12 months then will gurantee a return of 10.5%(AER) on the capital sum.

3) Euro Appreciation Strategy - the euro rising against the USD. Target if above 1.1445 in 12 months will guaranatee a rate of 6%(AER) on capital sum.

4) Australian Dollar Appreciation Strategy - 6% AER if the AUD/NZD dollar exchange rate is above 1.1560.

I hope you get the idea :confused: ...

So questions I have are: a) Has anyone used customised deposits as an investment vehicle? and b) Of these trading strategies how do they sound to you? Is my bank giving me sensible advice and ideas?




Senior member
Looks like they've missed the boat. It's just "guess" work on their part.
You'd be better off doing your own homework.
Fear banks bearing gifts

Three points about investment-related deposits:

(1) Presumably the return is characterised in the small print as interest, so it will be subject to income tax at your marginal rate, and not available for offset against losses (unlike a capital gain);

(2) It makes a lot of difference whether the safety-net is return of capital plus a basic interest rate or just capital, and also whether you can get your capital out during the life of the contract without a swingeing penalty (and sometimes whether you can actually get it out at all, if the value of the investment went up and then down - see the FSA on mis-selling of precipice bonds);

(3) From the point of view of the bank, they are only attractive to sell if the probability is that there will be no excess return - it is a way of inducing you to accept a lower deposit interest rate than normal in exchange for the embedded option to enjoy the upside. Since the bank is selling you this option, you should assume that it is priced to generate a profit for the bank, relative to just paying interest on a deposit, and a corresponding loss for you. You will almost certainly get a higher return out of normal floating rate deposits as rates increase.
National Savings Guaranteed Equity Bond 8

This is a much better punt than customised bank deposits; no credit risk, 15% minimum interest (rolled up to 5 year redemption point) and 75% of the upside on FTSE, paid gross but subject to UK income tax on receipt.
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