Structured products linked to interest rates

1 min. reading
Financial Education, Investment / 27 August, 2019

Sergio García Head of Third-Party Products

How to invest in different currencies

How to invest in different currencies

Private Banking clients are increasingly more interested in investing in different currencies. Structured products offer solutions to materialise this type of investment idea.

Range accruals are undoubtedly among the most popular interest-rate linked structured products. They are worth looking into if you want to receive a regular interest payment above market rates, linked to changes in interest rates.

They are products with an underlying that is usually an interest-rate index, or a combination of two indices if you want to benefit from the spread between the two.

The maturities of products of this type tend to belong, varying between 5 and 10 years, depending on the structure of interest rates. That is why an early cancellation option is sometimes added to the product when its issuer considers it appropriate. It should be noted that in these structures the capital tends to be guaranteed by the issuer at maturity or on the early cancellation date.

The structure operates in a very intuitive way. The product will pay a coupon, provided that the underlying stays within a specified range. It is called an accrual because the coupon can accrue interest every day; this means that on each payment date it will pay the coupon, depending on the number of days that the underlying has been within the range (out of the total number of days in the period).

As is usually the case in the world of structured products, we can tailor their characteristics fully to our clients’ needs. By adapting ourselves to their requirements, target return and risk, we can achieve a customised product for each investor.

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