Derivatives · Intermediate · 4 min

Discount, bonus and index certificates

You can explain the payoff of discount, bonus and index certificates, what each one gives up, and why they all carry issuer risk.

Read the terms

Buy a share at a discount. Earn a bonus as long as the market does not crash too far. Follow an index without paying fund fees. Certificates make attractive promises.

Each promise is paid for with something, and that something is written in the product terms. This lesson explains three of the most common certificate types in Europe, and what each of them gives up.

Discount, bonus, index

All three are debt securities issued by banks, as described in the lesson on issuer risk. BaFin reminds investors that certificates are not covered by deposit protection.

Discount certificates. A discount certificate lets you buy exposure to an underlying below its current price. In return, your payout is capped at a maximum level, the cap. If the underlying ends above the cap, you receive the cap. If it ends below, you receive the underlying's value. The discount cushions small losses and limits large gains.

Bonus certificates. A bonus certificate pays at least a bonus level at maturity, as long as the underlying never touches a barrier below the starting price during its life. If the barrier is touched, the bonus mechanism ends, and the certificate usually behaves like the underlying, often without dividends. Some have a cap as well.

Index certificates. An index certificate tracks an index, often at a ratio of one to one, sometimes for a small fee. Unlike an index ETF, it is a claim on the issuer, and price indices without dividends are common.

Two points apply to all three:

Dividends. Discount and bonus certificates usually do not pass on the underlying's dividends. Issuers use them, together with option components, to finance the discount or the bonus.
Complexity. BaFin's 2025 market study on certificates found that almost half of the consumers surveyed in advisory conversations had difficulty following the explanations of some certificate types.

Cap 105, cushion 10

A fictional share trades at 100. A discount certificate on it costs 90 and has a cap of 105, maturing in one year.

Share ends at 120: the certificate pays 105. Gain 15. The share itself gained 20, plus any dividend.
Share ends at 100: the certificate pays 100. Gain 10, while the share was flat.
Share ends at 80: the certificate pays 80. Loss 10, while the share lost 20.

The discount bought protection for small falls and paid for it with the upside above 105 and with the dividends.

Common mistakes

Seeing the discount as free money. It is paid for with capped upside and dividends.
Ignoring the bonus barrier. Once touched, the bonus is gone.
Treating index certificates like ETFs. They carry issuer risk.
Buying products you cannot explain. Read the terms before you buy.

The takeaway

Discount certificates trade upside for a lower price, bonus certificates pay a bonus unless a barrier breaks, index certificates track an index. All depend on the issuer.

Check yourself

Quick quiz

4 questions. Instant feedback, nothing is saved.

1Tap the certificate whose bonus can be lost if a barrier is touched.

Tap the chart.

If the barrier is touched, the bonus mechanism ends and the certificate usually follows the underlying, often without dividends.
2A discount certificate on a share at 100 costs 90 and has a cap of 105. The share ends at 120. What does it pay?

Above the cap, the payout is fixed at the cap. The gain is 15, while the share gained 20.
3What do discount and bonus certificates usually give up in exchange for their features?

The issuer uses the dividends and option components to finance the discount or bonus.
4Why does an index certificate differ from an index ETF?

If the issuer fails, the certificate can lose its value. An ETF's holdings belong to the fund.

of 4 correct.