Editor’s note: This article was first published in August 2010; the availability of combined deposits at any bank and the example 4–5% return on the fund portion reflect Spanish banking products of that time.
Combined deposits are still among the options for conservative investors. These days virtually every bank offers them, and they remain a very interesting investment option. So what exactly are combined deposits?
A combined deposit is a mix of two investment vehicles, which as a rule are:
- A fixed-term bank deposit with a guaranteed return: 80%
- An investment fund: 20%
Typically 20% or 30% goes into the investment fund and the rest goes into the fixed-term deposit. One part of your investment is fully guaranteed (the fixed-term deposit), while the other part has, let’s say, a return that is unknown until the end of the contract (the investment fund).
In other combined deposits the split is 40–60% or 50–50%, so that part can always be negotiated with your bank, provided it offers that option.
As we explained earlier, the part of your capital that goes into the investment fund is invested by the bank itself, usually in stock market assets (shares), which the bank has already assessed as a low-risk investment.
Nowadays some combined deposits guarantee that you will get all your capital back, offering a return of, say, 4–5% on the investment fund portion, but as I always advise, you should read the small print.
It is undoubtedly a good option for people who want to earn a return on their capital but don’t like high risks, because even if they don’t earn anything on the portion invested in the fund, they keep the return from the fixed-term deposit.
Further reading
- Why stock market investing is still the most profitable investment
- Investing in high-yield bonds
- 7 types of investors, 7 levels of investing
- Financial education: how to achieve financial freedom
Featured image: Don Graham, CC BY-SA 2.0, via Flickr.
