Designed for down markets
A Snowball note pays you a premium that accumulates over time. If the market stays flat or moves slightly, your premiums stack — and when the note gets called, they all pay out together. If the market drops past a set level, the premiums pause. This is designed to generate returns in a market that isn't doing much of anything.
To show you how a Snowball note works, we'll use terms similar to a note we built recently. Market conditions drive pricing, so these numbers will shift — but the mechanics stay the same.
How It Works
This note accrues a 15% annualized premium. But unlike an income note where you get paid every month regardless, the Snowball's premium accumulates — it stacks up and pays out when the note gets called.
The note has regular observation dates where the bank checks whether all of the underlying indices are positive. If they are, the note gets called — it ends, you get your full principal back, and you receive all of the accumulated premiums at once. The longer it takes to get called, the more premium you've stacked up.
If the market is down but hasn't breached the 20% barrier, your premium keeps accruing. You're not getting paid yet, but the amount you're owed keeps growing. That's the snowball — it rolls and gets larger. If the market drops below the barrier, the accumulation pauses until the market recovers above that level.
What's the Trade-Off
"You're betting on a flat or choppy market — not a breakout rally."
What you give up
If the market takes off, you don't participate beyond your accumulated premium. A 30% rally still pays you 15% annualized. You're also committing your capital for the length of the term, and you can't access it early on your own timeline.
What you get
A 15% annualized return in a market that may be going nowhere. In a flat or slightly down year where the S&P returns 2%, you're still accruing 15%. The premium accumulates whether the market is up 1% or down 18% — as long as the barrier holds.
What Can Go Wrong
The market drops more than 20% and stays there.
If any underlying index falls below the barrier, your premium stops accruing. Nothing else happens — the note continues, you just aren't building premium during that time. If the market recovers above the barrier, the accumulation resumes. But if the market is still below the barrier at maturity, your principal is linked to the worst-performing index.
The note gets called early.
If all indices are positive on an observation date, the note ends early. You get your principal back plus all accumulated premium — but if it's called at the first opportunity, that's only one year's worth. You made money, but less than if the note had run longer before calling. Then you reinvest.
You miss a big rally.
If the market surges, you earned your 15% annualized premium — nothing more. That's the trade-off for getting paid in a flat or sideways market.
What Happens When the Note Ends
Called (all indices positive on observation date)
You get your full principal back plus all accumulated premiums paid out at once. We reinvest into a new
note.
Maturity — barrier intact
The term runs its full length and no index is below the barrier, but at least one is still negative. You get your full principal back — but no premium is paid. You preserved your capital, but didn't earn a return on this
note.
Maturity — barrier breached
An index is still down more than 20% at maturity. Your principal is reduced based on the worst-performing index. Because the note was never called, no premium was ever paid out.
When This Makes Sense
You expect the market to stay relatively flat or choppy over the next few years.
You want to earn a return without needing the market to go up.
You're comfortable with a 5-year commitment and understand that your capital is locked up for the
term.
You understand that if the market drops more than 20% and stays there at maturity, your principal is at
risk.
