In contrast to regular savings accounts, which involve no risk to your capital (assuming the bank does not file bankruptcy) investment accounts, like stock market-linked accounts, entail significantly more risk. If you wish to increase the value of your capital at a higher rate than the interest rate offered by your bank or building society, you will need to consider investment accounts. Investment accounts use your capital to buy stocks and shares on the stock market, or buy into goods and services expected to rise in value over time, such as property.
It is very risky, and somewhat unlikely, that you will make fast returns from investment accounts, and therefore any investment should be seen as a long-term opportunity and not an instant money-maker. Long-term investment of funds allows your capital the chance to ride out short-term stock market fluctuations, and increases the chance that your capital will benefit from significant investment returns. However, investing your money long-term does mean that it will not be instantly accessible in an emergency, and you may face penalties if you wish to reduce the investment term.
No savings or investment scheme is one hundred percent secure. There is always a chance that the financial institution with which you bank could file for bankruptcy, your retirement fund could close down or the stock market could crash. Some savings and investment accounts offer customers a reasonable level of security, such as guaranteed capital return and an interest rate one percent higher than the Australian Reserve Bank`s basic rate. However, usually an investment account involves a significant amount of risk, and it is rare that your capital is totally secure. Often your capital will be unsecured, but in exchange you will have the chance to make great investment returns.
According to previous trends, invested capital will produce better returns than capital deposited in a regular savings account, but of course historical data cannot predict the future and there is no guarantee of returns.
For more information on investment accounts, see: