Bank deposit or investment – what to choose?
All citizens with at least a small savings are wondering what will provide a larger income – using banking services or investing?
To choose the most promising tool for increasing capital, it is necessary to understand how deposits and investments differ, what are their features, and analyze the pros and cons of each method.
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Even today, despite the variety of instruments, many capital holders prefer to use bank deposits. Some simply do not know that there are other ways to earn interest on their savings, others do not want to take risks, and some do not want to look for new ways. This is not to say that they are completely wrong, since this option has many advantages:
1 Availability of guaranteed income with a predetermined rate. A condition on it is included in the agreement, and the bank does not have the right to change it unilaterally.
2 State insurance. Even if the bank loses its license, citizens will be returned their funds and a significant percentage of interest (subject to certain conditions prescribed by law).
3 You don’t have to spend a lot of time to place funds and control them. It is possible to conclude an agreement online, and an online bank is provided for obtaining information.
4 Possibility of early receipt of funds at any moment. According to the law, the money must be issued as soon as the depositor so desires.
5 Available to open a deposit and the gradual introduction of funds to it. This is convenient in cases where a citizen does not yet have a large amount at his disposal.
6 Providing depositors with various benefits and privileges, for example, cards are serviced free of charge.
However, we should not forget about the cons:
1 The use of low rates, which hardly cover the level of inflation, while they are constantly decreasing. Banking organizations do not seek to attract money from citizens on a large scale. Therefore, you should not expect a high income.
2 Restrictions related to insurance. If an insured event occurs, one depositor can receive a maximum of 1.4 million per bank. This amount includes the deposit itself, interest, funds from other accounts (for example, cards). The rest of the money is almost impossible to get.
3 Large time costs when searching for the most favorable conditions. The market for banking services is extremely extensive, and the conditions for their provision vary greatly.
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To date, various kinds of investments in order to generate income are actively used by both professional investors and ordinary citizens.
Investments have a major advantage in the form of potentially high returns. With their help, it is possible to receive not only additional, but also the main income.
In addition, the following positive points should be noted:
1 Receiving income requires a minimum of effort: placement of funds, subsequent control of income and adjustments to portfolio parameters.
2 Obtaining state preferences in the field of taxes. Investors can receive tax deductions on IIA, income in the case of a long-term investment of funds is exempt from taxes, etc., which can significantly increase the level of income.
3 Opportunity to invest in various instruments (diversification). This contributes to increased risks and higher returns.
4 The possibility of obtaining a good stable profit. With a competent investment portfolio, adding both high-risk profitable instruments and more conservative ones, you can receive a stable income from your investments.
However, you need to remember about the negative points, the main of which is the high probability of getting a much lower profit than the citizen expected, or even incur losses. This is due to the fact that activity in the investment market is based on independent decision-making and development of strategies. Even if everything is calculated correctly, the risk is inevitable, since there are no state and other guarantees here.
There are a few more downsides:
1 The level of income each month can be very different. There is a possibility that the profit will be significant for 2-3 months, and then there will be a streak of losses.
2 The need for start-up capital. Its value directly affects the amount of income. In other words, with insignificant investments, one should not count on quick profits on a large scale.
3 The need for constant monitoring of funds. You need to constantly monitor the market situation in order to avoid possible losses and search for new profit opportunities.
4 If you need to master the stock market, you will need to study new programs. They are necessary in order to control assets and make transactions.
The difference between deposits and investments
The main difference is that in the case when the money is kept on a deposit in a bank, they are under its control, while the organization undertakes to return them with the payment of interest. At the same time, decisions on how to dispose of them (investment in securities, loans) are made by bank employees, with the assumption of all possible risks.
In the case of investments, the right to make decisions about the purpose of investments, their size and the withdrawal of capital from the business is taken by the investor, analyzing the market situation, consulting with experts, etc. However, the final choice belongs to him.
When deciding for yourself which direction to preserve and increase your capital to give preference to in 2020 – deposits or investments, several factors must be taken into account. It is important to understand the purpose of investments. If she is keeping funds in a safe place, and compensating for inflation, then it would be wiser to choose a bank deposit. It is only important to remember that the sum insured per 1 bank is 1.4 million USD. and do not exceed it.
In the case when a citizen means precisely making a profit, then investments should definitely be preferred. Interest on bank deposits brings no more than 6-7% per year, while on investments you can earn up to 15% per annum.
It is recommended to use the following stock market instruments: bonds of large corporations, Eurobonds, stocks, dollar assets, etc. They are interesting from the point of view of a relatively low level of risk and the possibility of obtaining a large income. However, we should not forget that any investment activity in all cases involves possible losses and approach it with great responsibility.