Structured Deposits

Banks that provide structured deposits are subject to obligations such as providing information before the contract is made.

Deposits with a derivative built in

A structured deposit is a general term for deposits with an embedded derivative transaction. Because of the derivative, the interest rate can be expected to exceed that on an ordinary deposit¹. Unlike an ordinary time deposit, some structured deposits give the bank the right to choose the maturity date after the money is deposited, and on others the exchange rate decides the currency of repayment¹. Structured products in general, which combine a deposit, bond, or loan with derivatives, and the way to view them by splitting out the derivatives, are covered in What Are Structured Products?.

On a structured deposit where the bank holds the right to decide the maturity or to choose the repayment currency, the deposit comes with a trade in which the depositor sells an option to the bank². The depositor hands these rights to the bank and receives payment for them as a higher interest rate or as an option premium³. The bank uses the right when doing so is in its favor, so the depositor accepts a correspondingly worse outcome. On a structured deposit where the market automatically decides the repayment currency, the result is also the same as if the bank held this right and used it when it was in its favor.

A question-and-answer case from the National Tax Agency treats a time deposit that the bank may convert into a US dollar deposit if the yen strengthens as two contracts made at the same time. One is a contract for a "time deposit with guaranteed principal" (our translation), and the other is a contract for a derivative transaction. On this deposit, the depositor receives an option premium in return for the clause. The option premium is treated separately from the interest on the deposit³.

There are also structured deposits that put a lower limit on a floating rate, and these deposits have an interest rate floor built in⁴.

Deposits whose maturity the bank can decide

On a structured deposit where the bank holds the right to extend the maturity, the depositor receives a fixed rate above that on an ordinary time deposit. In return, the depositor may keep the money deposited at a low fixed rate even after market rates rise⁵. Callable time deposits are another example of a structured deposit².

Consider a fictional example in which 1 million yen is deposited with Bank J for an initial term of one year at a fixed rate of 1.0% a year. Bank J can extend the maturity one year at a time, up to a maximum of 10 years. These terms follow the typical terms of this type⁵. The rate on an ordinary one-year time deposit at the same time is 0.5% a year, and taxes are left out.

If market rates stay the same and Bank J lets the deposit mature after one year, the depositor receives 5,000 yen more interest than on an ordinary time deposit. If instead market rates rise and Bank J extends the maturity, the depositor stays at 1.0% a year. If ordinary time deposits keep paying 2.0% a year, the depositor receives 10,000 yen less interest for each year of extension. If the deposit is extended to 10 years, the nine extended years leave the depositor 90,000 yen short, or 85,000 yen short after subtracting the extra 5,000 yen from the first year. Bank J decides whether to extend, and the depositor has no say.

Deposits with a foreign-currency repayment clause

A structured deposit on which the exchange rate on the determination date decides whether the principal is repaid in yen or in a foreign currency is called a deposit with a foreign-currency repayment clause⁶. The time deposit with a US dollar conversion clause in the National Tax Agency's case is a similar type of deposit, which the bank may convert into a US dollar deposit if the yen strengthens³. In the Japanese Bankers Association's example, if the exchange rate on the determination date (the bank's published mid rate, TTM) is weaker for the yen than the conversion rate set when the money is deposited, or equal to it, the depositor receives the principal and interest in yen. If it is stronger for the yen, the principal is converted into the foreign currency at the conversion rate and repaid in that currency, and the interest is paid in yen⁶.

Consider a fictional example in which 1 million yen is deposited with Bank J for one year at 3.0% a year, with a conversion rate of 125 yen per dollar. If the exchange rate on the determination date is 125 yen or more, the depositor receives the 1 million yen and 30,000 yen of interest in yen. If the yen is stronger than 125 yen per dollar, the principal is repaid as 1 million yen ÷ 125 yen = USD 8,000, and the 30,000 yen of interest is paid in yen. The table below shows the amount received, treating the dollars received as converted into yen at the exchange rate on the determination date, and leaves out currency exchange fees.

If the exchange rate on the determination date is 125 yen or more, the amount received stays at 1.03 million yen however far the yen weakens. Once the yen is stronger than 125 yen per dollar, the amount received falls by 8,000 yen for each 1 yen the yen strengthens, and at 121.25 yen it equals the principal deposited. If the yen is stronger than that, the amount is below the principal.

Figure description

The figure shows the amount received at maturity minus the 1 million yen deposited. The deposit has a foreign-currency repayment clause, runs for one year at 3.0% a year, and has a conversion rate of 125 yen per dollar. The amount received includes interest, with dollars converted into yen at the exchange rate on the determination date. At an exchange rate of 125 yen or more on the determination date, the difference stays at the interest of +30,000 yen. Below 125 yen (a stronger yen), the difference falls by 8,000 yen for each 1 yen fall in the exchange rate, reaching 0 at 121.25 yen, −90,000 yen at 110 yen, and −170,000 yen at 100 yen. The gain is limited to the 30,000 yen of interest, and the loss grows the further the yen strengthens.

The shape in Figure 1 is the same as the profit and loss from selling a put option on USD 8,000 with a strike of 125 yen (a USD put, the right to sell dollars at 125 yen). If the yen on the determination date is stronger than 125 yen per dollar, USD 8,000 are worth less than 1 million yen in the market. On this deposit, the principal is then automatically repaid in dollars. This is the same result as if Bank J held the right to repay in dollars and used it when it was in its favor. The depositor receives payment for selling the right as a higher interest rate. How options on exchange rates work is covered in FX Options.

Early cancellation and loss of principal

A structured deposit generally cannot be canceled before maturity. Even if it can be canceled as an exception, the amount received may fall far below the principal⁷. On a structured deposit where the bank holds the right to extend the maturity, asking to cancel partway through incurs a cancellation fee, and a loss of principal is likely⁵.

Suppose that on Bank J's extendable deposit, market rates rise and Bank J extends the maturity. If the depositor cancels to move to a deposit with a higher rate, the depositor pays a cancellation fee. The Financial Services Agency has proposed amendments on how cancellation fees are shown⁸.

How far deposit insurance protects the deposit

Some products, such as structured deposits in foreign currencies, are not covered by deposit insurance. Even for structured deposits in yen, part of the amount, such as interest, is not covered⁷. General deposits, such as time deposits, are protected up to a combined 10 million yen of principal per depositor at each financial institution, plus interest and similar amounts up to the date of the failure⁹. Foreign currency deposits are not covered by deposit insurance¹⁰.

If the principal of a deposit with a foreign-currency repayment clause is repaid in foreign currency and the depositor leaves that currency in a foreign currency deposit, the foreign currency deposit is not protected by deposit insurance.

Sales rules

The Banking Act classifies structured deposits as specified deposits, and banks that offer them have obligations such as providing information before the contract is made⁵. Article 13-4 of the Banking Act defines specified deposits as deposits whose principal may suffer losses because of changes in interest rates, currency prices, market prices, and similar factors. The Banking Act applies the sales provisions of the Financial Instruments and Exchange Act, with some exceptions, to contracts for specified deposits¹¹. The Ordinance for Enforcement of the Banking Act lists the following three types as specified deposits: deposits whose principal may fall below the amount deposited on early cancellation, deposits denominated in a foreign currency, and deposits with a currency option transaction attached¹².

On July 30, 2026, the Financial Services Agency published proposed amendments to the "Comprehensive Guidelines for Supervision of Major Banks, etc." and other guidelines for structured deposits on which the bank holds the right to extend the maturity. The public comment period closed on August 31, 2026¹³. The proposal states that this type of deposit is offered mainly by online banks. It goes on to say that product summary documents sometimes do not describe in concrete terms how the risks differ from those of an ordinary time deposit. The proposal asks banks to show the following in materials that customers can easily see. These are how the risks differ from those of an ordinary time deposit, which customers the product suits and which it does not, the level of the cancellation fee and how it is set, and the breakdown of the interest rate⁸.

Notes

1. Japanese Bankers Association, "仕組預金" (Structured deposits, in Japanese), the opening paragraph, "仕組預金とは" (What structured deposits are), and "「仕組預金」のおもな特徴" (Main features of structured deposits). ↩ ↩²

2. Center for Advanced Financial Technology, Financial System and Bank Examination Department, Bank of Japan, "仕組商品投資のリスク把握と管理" (Understanding and managing the risks of investing in structured products, in Japanese), page 3, the text and table in "１．仕組商品とは" (1. What structured products are). ↩ ↩²

3. National Tax Agency, question-and-answer case "米ドル転換特約付定期預金の預入に際して受領するオプション料" (Option premium received when placing a time deposit with a US dollar conversion clause, in Japanese), "照会要旨" (Summary of the inquiry) and "回答要旨" (Summary of the answer). ↩ ↩² ↩³

4. Takahiro Hattori, "債券（金利）オプション入門―スワップションについて―" (Introduction to bond (interest rate) options: swaptions), Ministry of Finance, "ファイナンス" (Finance), August 2021 issue (in Japanese), "６．２ キャップとフロアの基本的な仕組み" (6.2 Basic structure of caps and floors). ↩

5. Financial Services Agency, "仕組預金の説明態勢等に係る監督指針の改正（概要）" (Amendments to the supervisory guidelines on explanation practices for structured deposits (outline), in Japanese) (July 2026), "概要" (Outline) and its note. ↩ ↩² ↩³ ↩⁴

6. Japanese Bankers Association, "仕組預金" (in Japanese), "仕組預金である外貨償還特約付預金の例" (Example of a deposit with a foreign-currency repayment clause, a type of structured deposit). ↩ ↩²

7. Japanese Bankers Association, "仕組預金" (in Japanese), "「仕組預金」にもリスクがあります。" (Structured deposits also carry risks). ↩ ↩²

8. Financial Services Agency, "仕組預金の説明態勢等に係る監督指針の改正（概要）" (in Japanese) (July 2026), "対応" (Response). ↩ ↩²

9. Financial Services Agency, "預金保険制度" (Deposit insurance system, in Japanese). ↩

10. Japanese Bankers Association, "えっ、銀行が…!? その時、預金はどうなる（預金保険制度）" (What happens to your deposits if a bank fails? (Deposit insurance system), in Japanese), "預金保険制度とは？" (What is the deposit insurance system?). ↩

11. "銀行法" (Banking Act, in Japanese; English translation: Japanese Law Translation), Article 13-4. ↩

12. "銀行法施行規則" (Ordinance for Enforcement of the Banking Act, in Japanese), Article 14-11-4, items 1 to 3. Item 3 covers deposits accompanied by a transaction under Article 2, paragraph 22, item 3 of the Financial Instruments and Exchange Act (one relating to the purchase and sale of currencies). ↩

13. Financial Services Agency, "「主要行等向けの総合的な監督指針」等の一部改正（案）の公表について（仕組預金関係）" (Publication of proposed partial amendments to the "Comprehensive Guidelines for Supervision of Major Banks, etc." and other guidelines (structured deposits), in Japanese) (July 30, 2026), "２．適用日等" (2. Effective date and other matters). ↩