Are you unhappy with standard bank deposit rates? Do you want to grow your money without risking your initial investment? Many people feel stuck between low-yield savings and high-risk stocks.
There is a solution that combines the safety of a bank with the potential of the stock market. It is called an ELD (Equity-Linked Deposit). This post explains how ELD works, how you earn profits, and what you must check before signing up.
1. What is an ELD? The Best of Both Worlds
Defining Equity-Linked Deposits
An ELD is a specialized savings product sold by banks. It offers 100% principal protection if you hold it until maturity. However, it differs from a regular fixed deposit in one major way. Your final interest rate depends on the performance of a specific stock index, such as the KOSPI 200 or the S&P 500.
The Secret Dual Structure
How can a bank guarantee your principal while offering stock-market returns? They split your money into two parts:
Safe Asset Investment: The bank invests most of your money in very safe assets like government bonds. This ensures they can return your full principal at the end of the term.
Derivative Investment: The bank uses the remaining small portion to buy stock index options. If the stock market hits certain targets, this part of the investment generates high bonus returns for you.
How Much Can You Earn?
ELDs aim for higher returns than standard savings accounts.
The Profit Potential: For example, if the KOSPI 200 rises by 10%, your ELD might pay an annual return of 4% to 5%. This is significantly higher than the current average bank rate of around 3%.
The Minimum Guarantee: If the stock market fails to meet the required conditions, you might only receive a very low "minimum guaranteed interest," such as 0.1% to 1%. However, your original deposit remains untouched.
2. Three Powerful Benefits of ELDs
✅ Complete Principal Protection: Your initial deposit is 100% safe as long as you keep the account until the maturity date. Market crashes do not shrink your principal.
✅ Depositor Protection: Because an ELD is a bank deposit, it falls under the Depositor Protection Act. In many regions, this protects up to 50 million KRW (or equivalent local limits) per person.
✅ Market Participation: Conservative investors can benefit from a "bull market" without the fear of losing money. It is an excellent way for beginners to enter the world of investing.
3. Important Warnings: Read Before You Invest
While ELDs are safe, they are not simple. You must review the contract conditions carefully.
Complex Profit Conditions
Profit rules are often complicated. Terms like "Knock-in" or "Knock-out" mean that if the index rises too high or drops too low at a specific moment, your profit might change. A rising stock market does not always guarantee a high payout. Always ask your banker for a clear explanation of the "payout triggers."
Early Withdrawal Risks
Principal protection only applies at maturity. If you close the ELD early, the bank may charge a high penalty. Depending on market conditions at that time, you might even lose some of your original principal. Only use money that you do not need for the next year or two.
4. ELD vs. ELS: Do Not Get Confused!
Many people confuse ELDs with ELS (Equity-Linked Securities). They sound similar, but their risk levels are completely different.
| Feature | ELD (Deposit) | ELS (Securities) |
| Provider | Banks | Brokerage/Securities Firms |
| Principal Protection | 100% Guaranteed (at maturity) | High risk of loss |
| Legal Protection | Covered by Depositor Protection | NOT Covered |
| Risk Level | Low (Conservative) | Medium to High (Aggressive) |
Remember: An ELS is an investment product that can lose money. An ELD is a bank product that protects your money.
Conclusion: Is an ELD Right for You?
ELDs are perfect for investors who hate risk but want more than a 3% return. It allows you to sleep soundly knowing your money is safe while still giving you a chance to celebrate when the stock market goes up.
Check your local bank today for their current ELD offerings and see if the index conditions match your outlook for the coming year!
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