Low-Risk Investments: Fixed-Term Deposits, Interest-Bearing Accounts, and Safe Alternatives
Introduction: What Does “Low Risk” Mean?
When we talk about low risk, we mean investments where the chance of losing capital is minimal and returns are relatively stable, though moderate. These investments don’t promise huge short-term gains, but they do offer security and predictability, ideal for protecting money against unforeseen events or moderate inflation.
The most common examples include:
- Fixed-term deposits
- Interest-bearing accounts
- Short-term bonds from reliable governments
- Certificates of Deposit (CDs)
Fixed-Term Deposits
What Are They?
- Depositing money in a bank for a set period in exchange for a fixed interest rate.
- At the end of the term, you recover your capital plus interest.
Features:
- Risk: very low, as long as the bank is solvent.
- Term length: from 30 days to several years.
- Return: fixed or adjustable according to inflation, currency, or agreed rate.
- Liquidity: limited; early withdrawal usually means losing interest.
Interest-Bearing Accounts
What Are They?
- Bank accounts that earn daily or monthly interest on the available balance.
- They work like a traditional checking account but with a yield benefit.
Features:
- Risk: very low, guaranteed by the bank.
- Liquidity: high, you can withdraw money anytime.
- Return: lower than fixed-term deposits, but flexible and accessible.
Certificates of Deposit (CDs)
- Similar to fixed-term deposits, usually issued by banks or financial institutions in more formal or international markets.
- Allow investment in local or foreign currencies.
- Can have fixed or variable interest options, depending on the contract.
Strategies by Investor Level
Beginner
- Deposit in local fixed-term deposits or interest-bearing accounts.
- Goal: learn about interest and money management without risk of losing capital.
Intermediate
- Diversify among fixed-term deposits from different banks, interest-bearing accounts, and international CDs.
- Consider staggered terms (“laddering”) for periodic liquidity and to take advantage of different rates.
Advanced
- Combine fixed-term deposits, interest-bearing accounts, short-term bonds from reliable governments, and international deposits.
- Evaluate inflation and exchange rates to protect purchasing power.
Advantages and Disadvantages
Advantages:
- Security and low risk of loss.
- Predictable income from interest.
- Flexible liquidity depending on the product (high for interest-bearing accounts, medium for fixed-term deposits).
Disadvantages:
- Lower returns compared to stocks, ETFs, or commodities.
- Does not fully protect against high inflation (especially in local currencies).
- Dependence on the issuing bank or institution: very low but existent risk of insolvency.
Practical Tips
- Compare rates among different banks or financial platforms.
- Diversify among products to balance liquidity and returns.
- Check early withdrawal conditions in fixed-term deposits or CDs.
- Consider investment currency: in some countries, dollar-denominated terms protect against devaluation.
Conclusion
- Beginner: use interest-bearing accounts or local fixed-term deposits, starting with small, safe amounts.
- Intermediate: diversify terms and banks, explore international CDs, and use staggered strategies.
- Advanced: combine local and international products, monitor inflation and exchange rates to preserve purchasing power.
These investments don’t generate fast, large profits, but offer stability, predictability, and security, forming the foundation of any solid, conservative portfolio.
It’s very important to diversify your portfolio to do it well—revisit the oracle to find out what else to invest in and how to do it right.
Glossary
Blue chips: established companies with decades of existence, billions in revenue, product diversification, consistent profits, cash reserves, and if they need financing, banks and markets lend to them because they trust their solvency.
Broker: a platform or financial intermediary that allows you to buy and sell stocks. Some brokers are international (e.g., Interactive Brokers, eToro), and others are local (depending on the country).
Call: a financial contract known as a derivative, whose value depends on a stock. It is the right to buy a stock at a certain price in the future.
Cap rate: capitalization rate, an indicator of the annual return of real estate investment.
Cash flow: monthly cash generated by the property after expenses (rent – taxes – maintenance).
Certificates of Deposit (CDs): "similar to fixed-term deposits, but usually issued by banks or financial institutions in more formal or international markets. They allow investing in local or foreign currencies. They may have fixed or variable interest options, depending on the contract.
Commodities: any basic, homogeneous, tradable product produced in large quantities and traded in global markets. They are used both for direct consumption and for industrial production.
Covered Call: investors holding stocks who sell “Call” options to generate extra income.
Covered bonds: bonds backed by specific assets, lower risk than regular corporate bonds.
ETF: an investment fund traded on the stock exchange like a stock.
Fixed-term deposits: depositing money in a bank for a set period in exchange for a fixed interest rate. At the end of the term, you recover your capital plus interest.
Futures contracts: agreements to buy or sell a certain quantity of an asset at a fixed price in the future.
Hedging: investing in stocks of other types such as precious metals or utilities to balance losses if company stocks fall.
High yield / junk bonds: small companies or those with liquidity problems, high risk, and high return.
Interest-bearing accounts: bank accounts that generate daily or monthly interest on the available balance.
Interest rate swaps: a financial contract between two parties to exchange interest payments on a notional principal. The most common swap is exchanging fixed rates for variable interest rates or futures.
Inverse ETFs: gain value when the index they track goes down.
Joint ventures: partnerships between two or more parties to develop a joint project, sharing risks, costs, and profits.
Leverage: using financing (mortgage or loan) to buy more properties than your capital would allow.
Leveraged ETFs: multiply market movements (2x or 3x), up or down.
Liquidity: in economics, liquidity is the ease with which an asset can be converted into cash without losing value.
Microcaps: very small cryptocurrencies by market cap since they are new or unknown projects. They have the potential to multiply by 100 but also the risk of disappearing overnight.
Mining (Bitcoin): using computers to validate transactions and earn rewards. Miners compete, consume electricity, and receive rewards in BTC.
Mutual Fund: a collective vehicle where multiple people contribute money that a professional manager invests in different financial assets: stocks, bonds, commodities, or a combination of them.
Net Asset Value (NAV): the price of each unit, which fluctuates according to the value of the mutual fund’s assets.
Offshore accounts: accounts opened in another country, used by some investors to access products not available locally or for tax advantages. It’s legal if declared, but each country has its own regulations.
Portfolio: the total set of financial assets (such as stocks, bonds, mutual funds, or real estate) owned by an investor or entity, aimed at achieving financial goals through diversification and risk management.
Put: a financial contract known as a derivative, whose value depends on a stock. It is the right to sell a stock at a certain price in the future.
REITs (Real Estate Investment Trusts): real estate funds that allow investing in large portfolios without directly buying property. They are traded through brokers like regular stocks, and there are even REIT ETFs.
Staking: some blockchains (Ethereum, Cardano, Solana) allow you to “stake” your coins on the network and earn interest. This generates passive income similar to a fixed-term deposit, but with more risk.
Unit share: when you contribute money to a mutual fund, you receive “units” representing your proportional participation in the portfolio.
Validation (Ethereum and other proof of stake): locking large amounts of coins to maintain the network and receive rewards.