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Investment Essay

August 20th, 2009 No comments

In the United States, a society plagued by capitalism, investing has become a way of life. To most Americans it begins with opening a savings account and slowly allowing that money to grow through the compounded interest rate over the years. While it may not seem like a big step in generating more income, nonetheless, this is a positive movement in the market of investments. With the many types of investments available knowing which are reliable, or safe, or yield good returns, are just some of the questions on the investors mind. Within each asset class there are investments to suit different kinds of risk, duration, returns and liquidity.

Bank savings account, as stated before, is the simplest kind of short-term investment. The returns on savings account are low when compared to other investments, but the returns are guaranteed by the supplier, in this case the bank. Banks offer security meaning if a bank was to go broke the federal government through the FDIC (Federal Deposit Insurance Corporation) insures your bank deposits of up to $100,000. Having guaranteed returns means an investment will not lose its value in the short term unlike other investments. The bank pays interest to you account for saving your money with them. Bank fixed term investment also known as certificate of deposit is when you deposit a sum amount of money for a set period usually three, six or twelve months. The money becomes locked away for the fixed term but, in return, you get a higher interest rate than you would receive from a straight savings account. Withdrawing money before the fixed term is over could cost a penalty. With a savings account you are able to withdraw part or all of your money whenever you want, making bank savings account completely liquid. Liquidity is the ease at which an investment can be turned into cash and this property of an investment is very important. Investments that are liquid are ideal for short- term savings, or as a place to hold emergency funds. If your looking for medium to long term goals a bank savings account is not a good investment. Rather try a certificate of deposit, which are good short or medium term investment depending on interest rates. Since interest rates are always changing it??s usually good to have money on fixed term deposit. Read more…