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OCBC 6 year structured deposit
24 Apr 2017 (272 views)

Dear Mr Tan,
Recently I enquired about a 12.45% interest, 6-year structured deposit as advertised by OCBC bank. The OCBC staff who attended to me explained that not only is the capital guaranteed after a tenure of 6 years, the interests paid out every 6 months are also guaranteed, provided there is no early termination by the bank and it remains solvent. 

I was skeptical at first as I understand that structured deposits do carry some risks, such as a non-guaranteed interest portion of the investment. I went to another OCBC branch and was also told the interests are guaranteed.

However, when I went to the OCBC website, I noticed that one of the risks stated is that there could be no interest payout in "some situations". (https://www.ocbc.com/personal-banking/investments/structured-deposits.html#how-to-apply)

I am not sure if the staff at OCBC have explained to me all the risks that I need to know about their structured deposit, given that there is a discrepancy between what I have been told and what is stated on their website.

When I highlighted to the staff that my understanding of "structured deposit" is never interest guaranteed, they told me that this is a bit different as the bank is not investing in riskier equities/forex but only tracking on interest rate-dependent investments. I am not sure about the details.

I wonder if you could kindly advise me if the OCBC structured deposit is safe and with interest payouts really guaranteed.

REPLY
The interest rate of 12.45% over 6 years represent about 2% a year. It is likely that the investment is safe. As it is described as a "deposit", it has the same security as a bank deposit.

However, you should get the product description in writing from OCBC. Do not accept the "verbal explanation" by the OCBC staff.

SOMEONE SAID:
 I've worked on a structuring desk for many years. This is the kind of product we do on a wholesale basis for retail banks, who then sell them on to customers. The principal is guaranteed so far as the bank underwriting this product is solvent. It doesn't fall under deposit insurance. The interest is NEVER guaranteed because there always will be underlying reference securities. Eg, equities, swaps, interest rate products, FX, derivatives etc. The problem with this kind of product is the VERY HIGH margins the banks make from selling them. The sales literature never indicate the true margins the bank is making. You are actually getting less return than you should given the risks that your $ faces.

If you must invest in these kind of products, do insist on reading the term sheets and prospectus. Avoid the sales literature at all costs. Unfortunately, the proper documentation runs into hundreds of pages, filled with financial and legal jargon!

 


OCBC 6 year structured deposit
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Dear Mr Tan,
Recently I enquired about a 12.45% interest, 6-year structured deposit as advertised by OCBC bank. The OCBC staff who attended to me explained that not only is the capital guaranteed after a tenure of 6 years, the interests paid out every 6 months are also guaranteed, provided there is no early termination by the bank and it remains solvent. 

I was skeptical at first as I understand that structured deposits do carry some risks, such as a non-guaranteed interest portion of the investment. I went to another OCBC branch and was also told the interests are guaranteed.

However, when I went to the OCBC website, I noticed that one of the risks stated is that there could be no interest payout in "some situations". (https://www.ocbc.com/personal-banking/investments/structured-deposits.html#how-to-apply)

I am not sure if the staff at OCBC have explained to me all the risks that I need to know about their structured deposit, given that there is a discrepancy between what I have been told and what is stated on their website.

When I highlighted to the staff that my understanding of "structured deposit" is never interest guaranteed, they told me that this is a bit different as the bank is not investing in riskier equities/forex but only tracking on interest rate-dependent investments. I am not sure about the details.

I wonder if you could kindly advise me if the OCBC structured deposit is safe and with interest payouts really guaranteed.

REPLY
The interest rate of 12.45% over 6 years represent about 2% a year. It is likely that the investment is safe. As it is described as a "deposit", it has the same security as a bank deposit.

However, you should get the product description in writing from OCBC. Do not accept the "verbal explanation" by the OCBC staff.

SOMEONE SAID:
 I've worked on a structuring desk for many years. This is the kind of product we do on a wholesale basis for retail banks, who then sell them on to customers. The principal is guaranteed so far as the bank underwriting this product is solvent. It doesn't fall under deposit insurance. The interest is NEVER guaranteed because there always will be underlying reference securities. Eg, equities, swaps, interest rate products, FX, derivatives etc. The problem with this kind of product is the VERY HIGH margins the banks make from selling them. The sales literature never indicate the true margins the bank is making. You are actually getting less return than you should given the risks that your $ faces.

If you must invest in these kind of products, do insist on reading the term sheets and prospectus. Avoid the sales literature at all costs. Unfortunately, the proper documentation runs into hundreds of pages, filled with financial and legal jargon!