Having seen the stock market experience significant volatility recently, investors may feel they want to hold some funds where their capital is guaranteed but they have the prospects of higher returns than current deposit rates.

For those holding investments, markets continue to be affected – by the lasting impact of the pandemic, high inflation, Russia’s ongoing invasion of Ukraine and more recently the Government’s ‘mini budget’.

The team at Milsted Langdon Financial Services would advise most investors to hold without change unless their objectives or circumstances have changed. But alongside that it could make sense to hold some funds where the capital is secure.

What about savers?

If you are holding capital in cash, high inflation can mean the buying power of these monies are depreciating in value over time.

The table below is an example of how the buying power of £1,000 can depreciate over time, depending on the rate of inflation applicable:

Structured Bank Deposits

A Structured Bank Deposit is one way for investors to benefit from the potential for markets to recover without having to put their capital at risk.

These accounts pay interest based on stock market levels and the capital is just as secure as any other bank deposit account – especially as it remains backed by the FSCS (Financial Services Compensation Scheme) guarantee up to a certain level.

The FSCS guarantee ensures that, even if the bank providing the deposit account goes bust, the UK government will guarantee the return of up to £85,000 of the original capital invested. As long as investors invest no more than £85,000 with any one bank, their capital is 100 per cent safe.

The rate of interest on a Structured Bank Deposit is linked to stock market returns based on a predetermined formula.

Because these formulas mean that interest rates are often at their highest when markets are volatile, there are some very attractive offers currently available, including the following:

2 Year Option – Linked to the FTSE 100:

14 per cent paid at maturity in 2 years if the FTSE 100 is at or above 100 per cent of the initial level.

3 Year Option – Linked to the FTSE 100:

22 per cent paid at maturity in 3 years if the FTSE 100 is at or above 100 per cent of the initial level.

5 Year Option – Linked to the FTSE 100:

36 per cent paid at maturity in 5 years if the FTSE 100 is at or above 100 per cent of the initial level.

Structured Bank Deposits don’t pay interest if stock market levels are lower at maturity than they were at the outset. That means that all investors are risking is the interest they might have potentially earned during this period.

If you have the capital to invest for a fixed term and want the potential for a higher rate of interest, without risking your capital, then please get in touch with your usual contact, or our team of IFAs, for further advice on Structured Bank Deposits.

Please note – this article is for general information; you must seek specific advice regarding your individual circumstances when it comes to investing. Any investment return received will be net of our charges.

*Your Total Initial Payment is made up of two parts: 95 per cent is invested into the deposit plan and the remaining five per cent is used by the deposit taker to purchase financial instruments to enhance the potential returns on the Enhanced Option.