The FTSE accumulation deposit has a term of six years and two weeks. It provides 7.5 per cent growth a year or 1.5 per cent growth a quarter locked in provided the index closes between 4,500 points and 7,000 points at each quarterly or annual observation period. If the closing level of the Index is less than 4,500 or more than 7,000 on any business day during an Observation Period, no interest will accrue for that period. This means it may be possible for the plan to pay no interest at all at maturity.
The maximum potential return on the annual growth option is 45 per cent and the maximum potential return on the quarterly option is 36 per cent.
As a structured deposit, capital is never at risk from index performance. But it will depend on the ability of RBS as the deposit taker to return the capital to investors at maturity. RBS has a current rating of ‘A’ from Standard & Poor’s.
This plan is unusual in the way its return depends on the index trading within a specific range. As its name suggests, Gilliat’s Range Deposit – June 2012 also calculates returns using a trading range, but does so in a different way that does not provide a like for like comparison. Not only are the annual returns payable each year rather than at maturity, the trading range for the FTSE 100 is expressed as a percentage up or down that increases by 6 per cent each year.
For example, in year one, 7 per cent growth is payable if the index rises or falls by up to 21 per cent. In year two, another 7 per cent growth is payable if the index rises or falls by up to 27 per cent.
Choosing between the two products may depend on whether investors want the potential for a payment each year or just one payment at maturity.