Finance - Market Linked Deposits

Market Linked Deposits

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Many banks now offer deposit accounts that are linked to the performance of the stock markets. Various currencies are offered, often linked to home market indices. For instance a sterling issue will be linked to the performance of the FTSE 100. This is a way of providing a product that is suitable for anyone wishing to have a low-risk exposure to the equity market.

This is how market linked deposit products work: The bank guarantees the capital invested over a period of two, three or five years (depending on the specific product), and in some issues, offers a guaranteed small annual return. Depending upon the issue, a participation in the potential growth in the market is offered. This ranges from 70 to 100 percent of the market growth and the bank underwrites any losses if the markets do not rise in the given term.