Structured Products explained


As the governor of the Bank of England, Mervyn King recently predicted, Consumer Price Inflation (CPI) reached 3.5 per cent in January – the fastest annual pace for 14 months – requiring him to write a letter of explanation to the Chancellor. In it, the governor said the inflation rise was ‘temporary’ and he anticipates this will quickly fall back below the 2 per cent target and could remain below this level for several years. This means that I would expect interest rates to remain low for the foreseeable future.


With the low interest environment we have had more enquiries from historically cautious investors, including care homes, who are looking for better returns for their cash deposits.

The good news is there are alternative low-to-medium risk products that can generate a better return. One possible alternative could be so-called Structured Products, which typically run for three to five years. The attraction here is that these come with a capital guarantee provided from a strong financial institution.


The return depends on the performance of the financial markets. For example, you might invest money for three years in a product that guarantees a return (in addition to the original capital) if the value of the FTSE100 is higher in three years. So, if the FTSE100 was at 5,300 when the investment is made and after three years it was at 5,301 or higher you would get the guaranteed return. If the FTSE 100 was lower at the end of three years, you would simply get your money back in full. The capital is not usually returned until the end of the investment term.


These products are currently generating yields equivalent to 6 or 7 per cent per year – although the returns vary depending on provider and how long you want to invest for.