Thoughts on Barclays Three Year Euro Structured Deposit - Standard Life

I should say upfront that I don’t think structured products are ever really justified and are unnecessarily complicated financial engineering which exploit savers loss aversion and I haven’t recommended anyone buy a structured product like this ever in the last 30 years.

The closest approximate alternative to a 3 year structured deposit is a short term high credit bond fund. They are not the exactly the same thing but it’s the closest approximate alternative to gauge what a reasonable market return should look like for comparison purposes.

For example The Vanguard Global short term bond index fund has a yield to worst of 4.18% at the end of February. The average duration is 2.7 years and average credit quality Aa-.

So a conservative investor should easily be able to get over 1%pa more from the bond market without taking on more default risk than Barclays as a counterparty and without taking on huge term risk. The notional promise to return capital at the end of the term is a high price to pay.

“In the event of Barclays Bank Ireland plc being unable to meet any claims against it, money from your policy held with that provider will not be covered by schemes such as the Deposit Guarantee Scheme.”

In summary

You are locking up your capital for a fixed term of 3 years at a fixed rate of 3%pa less charges for the product you own with the possibility of a tiny bonus of 0.03% dependent on the performance of an equity index over 3 years.

so you would have more flexibility with alternative options and are giving up over 1%pa to feel like your money is safe at a time when inflation will currently guarantee to reduce its value in real terms by more than the interest rate being paid.

Marc Westlake CFP, TEP, APFS, QFA, EFP
Chartered, Certified and European Financial Planner
Registered Trust & Estate Practitioner
Everlake
 
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