Investment Deposits: Balancing Risk and Reward

Planning your finances and investing are integral parts of a financial strategy. However, with the multitude of financial instruments available, choosing where to put your money can be a rather challenging task.

We also recommend reading our article: "Investing in Stocks, Bonds, and Fixed-Term Deposits: What to Choose for EU Citizens?"

If you've decided to invest in term deposits, the next step is choosing the type of term deposit.

Today, we will delve into one of the types of term deposits – the Investment Deposit.
The Investment Deposit is an attractive option for depositors, especially for those seeking a moderate level of risk and investment stability.

Let's take a closer look at what this instrument entails and the opportunities it provides.

What Is an Investment Deposit?

An Investment Deposit is a special type of bank deposit that combines elements of a savings account and an investment portfolio.
Essentially, this allows you to earn interest similar to an ordinary deposit, but the bank also invests a portion of your capital in various financial instruments, such as stocks, bonds, and investment funds.

This investment approach enables investors to diversify their portfolios and earn higher returns compared to ordinary deposits.

How Does the Investment Deposit Work?

An Investment Deposit typically starts with opening an account at the bank, similar to how you'd open an ordinary term deposit. Afterward, you and your bank decide what percentage of your funds will be invested and in which instruments.

The bank usually offers several portfolio options with varying levels of risk. By selecting a specific portfolio, you control the level of risk you're willing to take.
Your money will work for you, generating income that will be credited to your deposit.

However, like any investment instrument, the Investment Deposit has its pros and cons.

Advantages of the Investment Deposit

Portfolio Diversification

Investing in an Investment Deposit allows you to allocate your capital across various assets, such as stocks, bonds, and others. Diversification helps reduce the risks associated with market fluctuations. If one investment doesn't yield profits, others can compensate for it. This strategy ensures stability and the preservation of your funds.

Higher Profit Potential

Unlike standard savings accounts, where interest rates may be relatively low, Investment Deposits offer higher interest rates. This is because your capital is actively involved in financial markets. You can expect investment returns that significantly outpace inflation and the interest rates on ordinary deposits.

Professional Management

Investment Deposits provide access to professional financial advisors and managers who oversee your investments.
The bank's experts take responsibility for choosing the most profitable assets and regularly review the portfolio in line with market changes. This relieves you from the need for constant market monitoring and decision-making.

Transparency

The bank provides regular reports on the status of your investment portfolio. This allows you to monitor the management of your assets and assess your portfolio's performance.

Investment Deposit Risks

Capital Loss

Investment Deposits, unlike ordinary deposits, are associated with the risk of losing a portion or even the entirety of your investment. Profits may be earned, or losses incurred, and the returns from the deposit portion may not offset the losses from the investment.

Ineffective Management

Investment Deposits are managed by professional managers, and you have no direct control. There is a risk of ineffective management or a mismatch with your expectations.

Management Fees

Regardless of how effectively the bank manages your funds, there is a management fee. This fee can be either fixed or a percentage of your investments, impacting the overall yield of your deposit.

Who Is Suitable for an Investment Deposit?

This type of term deposit is suitable for investors who have the means and are prepared for potential losses. If you seek a highly predictable deposit without risks, we recommend considering an ordinary term deposit.

You can find and select the best term deposit offers among over 1,000 banks in 25 EU countries on our “Find deposit” page.