Deposit Based Investments
Deposit based investments are those that involve banks and building societies. In practice, you, as a depositors, are loaning your cash to these institutions in order to be rewarded a return rate that is just below the base rate. The institution in turn places you funds on the money markets or loans the funds out to other customers. In the latter case, the institution normally takes a margin or spread.
Capital is generally guaranteed (depending upon the institution's credit rating), but interest (income) will fluctuate depending upon the base rate set by the governing central financial body. In times of low interest rates, you, as the investor, might look to take a higher risk, to increase your returns.
Banks and building societies mainly manage cash, though liquidity funds can be used to obtain a possible higher return.
|Evaluate the pros and cons as well as the various types of bank-based investments.
|Read about building societies and the various options they offer the investor.