What is a Bank Investment Contract?

Bank Investment Contracts are a buy-and-hold investment strategy that involves investors keeping money in a bank for a fixed amount of time and receiving a guaranteed fixed rate of return. The timeframe is between one and ten years. They are also called Bank Deposit Agreements.

This strategy works best for investors who prefer saving their wealth for fixed periods than investing it. Savings accounts work similarly in terms of higher interest rates for higher deposits. Saving accounts encourage individuals to increase savings to earn higher interest. BICs offer a fixed rate of return but have higher returns for higher deposits. BICs offer lower risks.

Features of Bank Investment Contracts

The bank’s involvement

What sets a Bank Investment Contract from a Guaranteed Investment Contract is that the former is issued by the bank while the latter is issued by an insurer. Insurers are considered nonbank financial institutions.

The bank does more than create a BIC for you. It backs your account with its assets.

Maturity period

The maturity period is already predetermined and is usually between one year and ten years. Your money matures after that. Some BICs provide for shorter maturity periods, such as a few months. This means that for a BIC with a five-year maturity period, you will earn the total agreed-upon interest if you do not withdraw your money before the five years lapses.

Low-risk

BICs are usually very low risk as they are buy-and-hold. This is why BICs are best preferred by individuals who want their money preserved in a secure and legal investment vehicle compared to investing it. However, this does not rip them of returns. Remember, with BICs; the returns are guaranteed and predetermined. Such individuals may include retirees who want to earn more on their 401(k) plans while still retaining their principal amount.

However, while this does not happen often and is not an isolated issue, investors may risk losing all their money if the BIC was not properly and legally set up or if the bank does not adequately play its part. Confirm whether the bank providing you with a BIC has a good reputation and whether it is insured.

Higher yields

BICs have higher yields than both savings accounts and Certificates of Deposit. BICs differ from Certificates of Deposit since they allow the account holder to continue making deposits to their accounts. Certificates of Deposit only allow singular deposits in the form of one lump sum. Further, BICs earn more than typical CDs and other saving accounts.

The US government does not back BICs, nor are they included in the Federal Deposit Insurance Corporation (FDIC) as insured deposits. Therefore, they earn more than the accounts that fulfill all these requirement.

Early Withdrawals

Bank Investment Contracts allow for early withdrawals under the following circumstances:

• When the investor becomes disabled within the timeframe.
• When the investor becomes financially challenged within the timeframe.
• When the investor retires (pension plans).
• When the investor is fired.

Illiquidity

In case you want to sell your BIC quickly and use the cash promptly, BICs will utterly disappoint you. They cannot be sold over a secondary market, reducing your chances of getting your money fast. The fact that they are buy-and-hold accounts means that banks do not encourage any withdrawals until the maturity date.

Contents of the BIC

A qualifying, legal Bank Investment Contract should have the following items:

• The parties involved.

Your contract should clearly state your full name and that of the bank providing you with the BIC. It should also state the name of the bank employee availing this document for you to sign. The parties then become ‘Investor’ and ‘Company.’

• The contract start date.

Confirm whether the date indicated is the actual date you signed the contract because the BIC will start functioning from that date onwards. The purpose of this is best seen later when the investment matures. Knowing you have an extra day or a few more hours could save you much trouble.

• Bank fundamental details.

Remember that this is a contract between you and the bank. The same way they ask for your personal details is the same way you should demand theirs to be on the contract if they are omitted already. This includes the founding date of the bank, the type of company, and the registered bank office you are signing at.

• Terms and conditions

Like any other contract, BICs have specific rules that have to be followed by both parties for seamless business. Here is where the brunt of the agreement lies. The contract should state how much you invest into your BIC, written in both words and figures to ascertain authenticity. For instance, if you have invested twenty million dollars, most BICs will have the figure of $20,000,000.00 in brackets and close succession. Notice that they also include the cents because, after maturity, there may be cents earned in interest.

The contract must clearly state the actual date of maturity, which is the completion date. It should also state where the completion will occur, mainly in the same location you signed your BIC.

There should be a clause stating your right to request financial statements pertaining to your account at any time. This ensures the bank is diligent in record-keeping, a legal requirement. With these statements, you can see how your money is performing. Further, the bank has to seek permission from the investor if they intend to do anything with their money. Until a clear go-ahead is given, the bank has no option but to wait.

• Signatures

If all is well, and until all is well, both parties can append their signatures at the bottom of the document. They should also include their name.