There are many different types of Investment Accounts in the financial market place. These investment accounts cater for different types of investors ranging from the conservative investor to the more aggressive investor.
Investment Accounts usually allow investors money to grow faster at a much higher rate of interest than the everyday transaction or checking (chequeing) account. Certain examples of investment accounts are Term Deposits, Debentures, Bonds, Managed Funds, Commercial Bills and Certificate Deposits also known as CD's.
Term Deposit
A Term Deposit is also known as a Fixed Term Deposit. A Term Deposit is a relatively low risk investment account which offers the conservative investor a competitive fixed rate of return for a term which may vary from 30 days to 5 years. Once a term is chosen, money cannot be removed before maturity without a penalty incurred. Interest may be paid monthly, quarterly, six month, annually or at maturity depending on the investors needs. A Term Deposit investment account has no montly account keeping fees. Various interest option payments are available with Term Deposits for example compound interest, standard interest, regular and defered interest. Term deposits require a minimum opening balance which may vary from $1000 to $5000. A regular savings plan cannot be established with a Term Deposit as funds can only be added at maturity.
Debenture
Debentures are fixed interest investments and are similar to term deposits. Debentures are available over 1 year to 5 years. Interest is paid monthly, quarterly, six month or annually. Debentures are fixed interest securities on which the issuer i.e. bank or financial group pays interest at a fixed rate for a specific term. Generally, the level of income paid on a debenture is higher than the rate paid on cash investments because of the longer term of the investment. Debenture holders are considered creditors of the company therefore in the event of liquidation debenture holders have a preferential claim on the companies assets.
Bonds and Convertible Notes
A Bond is a certificate of debt issued by a government or corporation in order to raise money. These debt securities include government bonds, semi government bonds, and convertible notes. Interest rates and government policies determine the rate of return. Bonds are generally issued from 12 months to 10 years. Bonds pay a fixed rate of interest and are repayable at a fixed date. Bonds do not represent equity ownership.
Managed Funds
Managed funds are usually managed by a financial group or financial sector. These financial group has the buying power to invest a wider range of investments than a single person. This is because the funds are being pooled together with many other investors. Managed funds have diferent risk profiles for example moderate, conservative and aggressive. Investment terms for Managed funds vary from 1 year to 10 years.
Commercial Bills
Commercial Bills are also known as Security investments, Negotiable Certificate of Deposits and Bills of Exchange. Commercial Bills can be short or long term investments which makes this investment type very flexible. Normal terms are from seven to 180 days (this term may be extended) with a variable or fixed interest rate. Commercial Bills initial investment usually commences from $50 000 depending on the financial institution. Commercial Bills are 'discount securities' that are sold at a discount to their face value. The difference between the purchase price (amount invested) and the face value (amount at maturity) represents the interest earned. The interest is fixed from the purchase date, until the maturity of the investment and the face value of the investment is paid on maturity. Commercial Bills can be suitable for personal or business investors. Commercial Bills have no account keeping fees.
Certificate of Deposits (CDs)
CDs are short term or medium term interest bearing investments that are offered by financial institutions such as banks. CDs are generally low risk investments which offer a higher rate of interest compared to an everyday transaction or checking ( chequeing )account, this is because the investor has agreed to keep their money in the account for a specified time which may vary anywhere from three months to six years. Investments withdrawn before maturity are subject to a penalty.
General questions to ask regarding investment accounts:
- What is the interest rate?
- How will I be notified of my maturing investment?
- What happens if I don't notify you?
- If I do not renew the investment will the interest rate stay the same?
- Will I be penalized if I require my funds before maturity?
- Can I add to this investment at anytime?
- Are there entry or exit fees associated with this account?
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