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Investment deposit

Investment deposit

Deposit with investment risk

  • Investments with capital protection in different asset classes
  • Covers markets that are difficult or expensive for single investors to enter

Investment deposit is a term deposit with investment risk. The interest of the investment deposit is not quaranteed and the receiving of the interest depends on the price movements of the underlying asset.

Previously opened investment deposits and their returns

Investment deposit

Investment deposit is a term deposit with interest risk, which is suitable for investing money for a period of two to five years. The goal of your placement should be at least as long as the deposit period. An investment deposit gives you the chance to benefit from favourable price movements on the market, but in case of negative price developments no interest is paid to the investment deposit. In case of an investment deposit with risk premium you will loose also the paid risk premium, accordingly, the entire return may turn to be negative even in case of positive price movements of the underlying asset.

Previously opened investment deposits and their returns


Capital protection

The income earned on the investment deposit cannot be predicted, since the interest to be paid is tied to the changes in the price of the underlying asset. The principal amount of the deposit, however, is protected: The bank will return it to you at the end of the deposit period.


Income on price movements of financial assets

Interest on the investment deposits is tied to movements in the price of the underlying asset. The broad selection of underlying assets allows us to offer various solutions from the stock markets of different areas, commodities and currencies to complicated strategies whose objective is to offer positive rates of return in all market situations.


Investment deposits with and without risk premiums

You can choose one of two options depending on your risk tolerance.

  • Your initial investment into an investment deposit without risk premium will be refunded to you at the end of the deposit period irrespective of the market situation. Part of the income on the underlying asset is paid out as interest in addition to the principal deposit amount if the price developments of the underlying asset are favourable.
  • In the case of an investment deposit with risk premium, you risk more by paying the bank a non-refundable risk premium in addition to the deposit amount. This ensures higher share in the positive price movements of the underlying asset. Your share may even exceed 100%, which means that an investment deposit may be more profitable than a direct investment made into the underlying asset. Whereas your investment will generate income for you in the case of positive price developments when the earned income exceeds the risk premium. In the event of negative price developments, your loss is limited to the risk premium.


Before making an investment decision, please take a closer look at the risks involved in the investment deposit in submenu “Risks".

Risks involved in investment deposits

Investing always involves risks. Read about the risks involved in the investment deposit before you make your final decision.


Credit risk

If you invest your money in an investment deposit, you risk losing all or part of the deposit amount and possible interest if the bank’s solvency deteriorates. The Guarantee Fund guarantees that your deposit amount is preserved in such cases.


Market risk

Market risk means that the value of the underlying asset of the investment deposit may move in the direction that is opposite to the one expected and any interest earned on the deposit may therefore be small or completely non-existent. Interest on investment deposits with risk premium may be lower than the risk premium paid by the investor.


Liquidity risk

Interest on an investment deposit in the event of premature termination of the deposit is tied to liquidity risk. If the aftermarket of the underlying asset of the investment deposit is illiquid or not available in the amount of the terminated deposit, you may lose the interest earned until termination or a part thereof.

What does an investment deposit consist of?

The amount invested in an investment deposit divides in two:

  • The majority of the money is deposited and it guarantees the safety of the investment;
  • The smaller part is used to purchase an option for movements in the price of the underlying asset, the return on which is the basis to interest calculation.


In case of an investment deposit with risk premium, we use also the risk premium to purchase an option for movements in the price of the underlying asset, which makes it possible to earn income that is equivalent to or even higher than income earned from direct investments. We pay out the interest earned on the option to you as interest. In case of investment deposit with risk premium, the interest must exceed the risk premium to earn income. If the value of the underlying asset moves in the direction that is opposite to the one expected, you will not earn any interest. In case of investment deposit with risk premium you will lose also the paid risk premium in such a case.
 

How does an investment deposit differ from other deposits?

Unlike ordinary term deposits, the investment deposit involves investment risk, which means that the amount of interest to be earned is not known in advance. In addition, in case of an investment deposit with risk premium it is possible to lose the paid risk premium or earn interest, which is lower than the paid risk premium.

As returns on investment deposits are tied to the value of underlying asset on quickly changing financial markets, they make it possible for investors to earn higher interest than ordinary deposits in case of favourable market conditions. Investment deposits do not generate income in the event of negative market developments, but still, your investment is protected: we return the deposited amount to you at the of the deposit period.

Starting from 2011, the interest paid on the investment deposits shall be subject to income tax. Read more about the investment account at www.seb.ee/investeerimiskonto.
 

What is an underlying asset?

The return on an investment deposit depends on movements in the price of its underlying asset. The underlying asset of an investment deposit is usually the equity index of a specific economic sector or region, commodities, currencies or strategies independent of movements on the market. Every offer is based on the anticipated possibility of bigger changes in the price of the underlying asset.
 

What does guaranteed interest mean?

Guaranteed interest means that the deposit will earn interest by the end of the deposit period notwithstanding the performance of the underlying asset. Guaranteed interest is usually lower than the interest of a term deposit for the same period and it is calculated on annual basis. The rate of guaranteed interest is specified in the terms and conditions of the offer.
 

What does participation rate mean?

Participation rate is the percentage of the positive changes in the price of the underlying asset to the extent of which the depositor benefits from possible favourable price movements. Interest is calculated by multiplying the participation rate by the changes in the price of the underlying asset. High participation rate gives bigger share of the developments in the price of the underlying asset. A participation rate that exceeds 100% means that the depositor could earn higher return than by investing directly in the underlying asset.

Participation rate is determined on the day the deposit is opened and it does not change.

Example: Participation rate in Investment Deposit 01 – Finland was 40%. The Finnish stock market index, which was the underlying asset of the deposit, increased by 47.8% during the two-year deposit period. Interest on Investment Deposit 01 – Finland amounted to 40%*47.8%=19.12%.
 

What does risk premium mean?

Investment deposits are available with or without a risk premium. Risk premium is usually 10% of the deposit amount. This means that a risk premium of 100 euros must be paid in addition to a deposit of 1,000 euros. Paying the risk premium increases your participation rate in the price movements of the underlying asset and allows you to earn more in the event of favourable price developments. Whereas it may happen, that the interest earned on an investment deposit with risk premium does not exceed the paid risk premium.

The alternative chosen by a depositor depends on his risk tolerance.

  • If 1000 euros are paid into a deposit without risk premium, the bank refunds the 1000 euros to the depositor at the end of the deposit period and it is also possible to earn interest on the deposit.
  • If 1000 euros is paid into a deposit with risk premium and a non-refundable risk premium of 100 euros is paid in addition to the deposit amount, the deposit will earn interest on favourable changes in the price of the underlying asset at a higher participation rate and enables the depositor to earn considerably more interest than a deposit without risk premium. However, the depositor risks losing 100 euros if the price of the underlying asset does not change as expected. In such a case we refund only the deposit amount of 1000 euros to the depositor.
     
Is the risk premium of investment funds with risk premium refunded at the end of the deposit period?

No. The non-refundable risk premium is used to buy for the depositor a bigger share in favourable price movements of the underlying asset, giving him the chance to earn higher return. This means that earning back the risk premium depends on whether the return of the underlying asset is sufficient. For example, the price of the underlying asset must change at least 8% in the case of a deposit with a 10% risk premium and a 130% participation rate for the depositor to earn back the risk premium.
 

How is the return on investment deposit calculated?
This term applies to investment deposits, whose interest is tied to changes in the EUR/SEK exchange rate. If the exchange rate of the Swedish krona becomes weaker, the interest decreases when expressed in euros.
The dates when the initial and final value of the EUR/SEK exchange rate is fixed and the formula how the given fixed information is used to calculate interest are given in the terms and conditions of the offer.
The table below contains examples of how changes in the exchange rate of the Swedish krona may affect the extra interest earned on the deposit. Increase in EUR/SEK marks the strengthening of the euro (more Swedish kronas can be bought for 1 euro).

 

Investment deposit without risk premium

Investment deposit with 10% risk premium

Share in the growth of the underlying asset (participation rate)

40%

110%

Deposit period

3 years

3 years

Initial investment

1000 euros

1100 euros

Return on underlying asset

Repaid
amount
in euros

Interest
rate
Return Return
on
annual
basis

Repaid
amount
in euros

Interest
rate
Return Return
on
annual
basis

-10%

1000 0% 0%

0%

1000 0% -9,09% -2,99%

0%

1000

0% 0% 0%

10 000

0% -9,09% -2,99%

5%

1020

2% 2% 0,66%

11 050

5,50% -4,09% -1,34%

25%

1100

10% 10% 3,29%

12 100

27,50% 15,91% 5,23%

50%

1200

20% 20% 6,58%

13 150

55,0% 40,91% 13,45%

 

What is the meaning of the term ‘adjusted with changes in the EUR/SEK exchange rate during the deposit period’ in case of investment deposits?

This term applies to investment deposits, whose interest is tied to changes in the EUR/SEK exchange rate. If the exchange rate of the Swedish krona becomes weaker, the interest decreases when expressed in euros.

The dates when the initial and final value of the EUR/SEK exchange rate is fixed and the formula how the given fixed information is used to calculate interest are given in the terms and conditions of the offer.

The table below contains examples of how changes in the exchange rate of the Swedish krona may affect the extra interest earned on the deposit. Increase in EUR/SEK marks the strengthening of the euro (more Swedish kronas can be bought for 1 euro).

Change in EUR/SEK (%) Interest rates

0%

10%

20%

  30%

+15%

0%

8,5%

17,0%

25,5%

+10%

0%

9,0%

18,0%

27,0%

+5%

0%

9,5%

19,0%

28,5%

0%

0%

10,0%

20,0%

30,0%

-5%

0%

10,5%

21,0%

31,5%

-10%

0%

11,0%

22,0%

33,0%

-15%

0%

11,5%

23,0%

34,5%

 

What is the meaning of the term ‘adjusted with changes in the EUR/USD exchange rate during the deposit period’ in case of investment deposits?

This term applies only to investment deposits opened in US dollars, whose interest is tied to changes in the EUR/USD exchange rate. If the exchange rate of the dollar becomes weaker, the principal deposit amount and guaranteed interest decrease when expressed in euros, but the additional interest that can be earned grows. Please keep in mind that the deposit amount is nevertheless calculated in dollars and not adjusted with the change in the exchange rate.

The table below contains examples of how changes in the exchange rate of the US dollar may affect the extra interest earned on the deposit. Increase in EUR/USD marks the strengthening of the euro (more dollars can be bought for 1 euro).
 

Change in EUR/SEK (%) Interest rates

0%

10%

20%

  30%

+15%

0%

11,5%

23,0%

34,5%

+10%

0%

11,0%

22,0%

33,0%

+5%

0%

10,5%

21,0%

31,5%

0%

0%

10,0%

20,0%

30,0%

-5%

0%

9,5%

19,0%

28,5%

-10%

0%

9,0%

18,0%

27,0%

-15%

0%

8,5%

17,0%

25,5%

 

 

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