Structured deposit plans
Structured deposit plans are cash-based fixed term deposits, like fixed rate bonds, but instead of paying a fixed rate there is a variable return linked to the performance of an underlying asset.
Structured deposit plans provide a full return of capital at maturity, subject to counterparty risk, plus a variable interest rate payment and are designed to either complement, or offer an alternative to, traditional cash based savings vehicles.
These plans are designed for investors who are prepared to sacrifice the fixed interest yield from a traditional cash deposit in return for a potentially higher return, dependent upon the performance of the underlying asset, but also wish to maintain the capital security offered by deposits.
As any returns generated from a structured deposit are deemed to be interest, the tax treatment is the same as for interest earned on cash deposits, and is therefore subject to income tax. As a deposit based investment structured deposit plans are available for investment through a cash NISA, which are not currently subject to any tax.
At the start date the investments are transferred to the Deposit Taker, who then provides the returns specified in the plan brochure in exchange for the interest generated by the deposit.
We place these investments on behalf of investors under a bare trust. This is an arrangement that allows Meteor (the Plan Manager) to act on behalf of investors in relation to their deposit. The Plan Manager will act as trustee of the trust and hold the deposits for the benefit of the individual investors. We will provide information to the deposit taker to confirm the individual investors who are the beneficial owners and, as such, are entitled to the funds placed on deposit.
If the deposit taker were unable to pay the amounts due, it is our understanding that direct investments and investments in cash ISAs may have recourse to the Financial Services Compensation Scheme ('FSCS') (see below).
Structured deposit plans can be held within a variety of wrappers and by a variety of entities:
- by individuals directly, jointly, or on behalf of a child under 18
- by pension funds including a SIPP and SSAS
- by companies and charities
- as a cash New Individual Savings Account (NISA)
Plans can be designed to offer a range of payoff profiles to meet investors’ requirements. The main options tend to be:
Growth – aims to deliver a growth payment linked to the performance of the underlying asset along with the repayment of the initial deposit at the end of the term
Income – aims to provide an income throughout the term, linked to the performance of the underlying asset, with the repayment of the initial deposit at the end of the term
Kick-out - offers the potential for the plan to mature early depending on the performance of the underlying asset, along with the repayment of the initial deposit.
Where a customer has invested in a structured deposit plan and the Deposit Taker fails to make the payments of interest and/or capital repayment due in the event of their default, the customer may have an eligible claim to recover any resulting losses from the FSCS. The Deposit Taker has to be a participant in the FSCS.
Whether investors are eligible to make a claim under the FSCS will depend on various factors, including the size of the relevant deposits, the size of any other deposits they hold with the same counterparty and the laws and regulations applicable to the relevant financial institution (which may vary depending on where they are based). If we act as bare trustee we may, depending on the laws, regulations and the facts at the time, make a claim on an investor’s behalf.
The compensation limit is currently £85,000 per person and this applies to all deposits held with the Deposit Taker and any other member of the counterparties group included under the same FSA number. Investors would not be covered for any excess amount over the compensation limit of £85,000. If a Plan is taken in joint names the compensation limit would apply to each investor. You can get more information about compensation arrangements from the FSCS.
Please refer to our 'Glossary' for further understanding of financial terminology.