In a world where investment returns are directly proportional to the inherent risks, the typical investor who opts for fixed income instruments is well into his or her chosen career, or in retirement. Basic family needs like owning a home and reasonable insurance cover have been taken care of, and returns from investments are the main source of income. Preservation of capital is paramount.

Many investors also have policies that are maturing and they want a safe place to park their hard-earned cash while they take advice and evaluate the different options available. A notice or fixed deposit account ensures that money earns good returns and is readily available.

Many people, however, don’t realise quite how much choice there now is among investment and deposit accounts, says Old Mutual Bank product manager Ben Stander.

“There are numerous products available with different minimum investment amounts, earnings consistency and interest rates. You can choose to have high access to all or some of your funds, the option of making additional deposits and withdrawals, and varying investment periods.”

Some basic points to consider when choosing which product best suits you are:

How much money do you have to invest?
Some products require you to invest a larger amount than others. Choose the right investment according to the amount you have available, keeping in mind that the more you invest, the more interest you should earn.

What accessibility do you need?
Different products offer varying degrees of access to your funds — also known as liquidity. For example, some don’t allow you to withdraw any money for the full term of the investment. Others will restrict you to a certain number of withdrawals of a certain amount. Think about how likely it is that you will need some of the money before the investment term is up (say for an emergency) and decide on the accessibility you feel most comfortable with.

How long do you want to invest for?
Again, the longer the investment period, the more interest you could earn. Take into account the reason for your investing — for example, if you want to use the money in a year for the deposit on a major purchase like a house, it could make sense to invest it for the longest investment term possible, even if it means delaying the purchase for a few months.

Do you want to grow your capital or earn extra income?
If you want to grow your capital the option is to leave the initial amount invested as well as the interest you earn in the account for the full term so that you earn interest on the interest and get a lump sum out at the end. The alternative is to get the interest you earn paid into another account monthly, quarterly or yearly. In this way, while you won’t grow the amount invested, you get extra income from it.

What type of interest rate would you be happy with?
The interest rates on certain products are influenced by outside factors — the bank does not control the rate. Some interest rates, for example, may be pegged to the money markets, so if they do well, your interest is obviously higher. Other interest rates are fixed for the entire investment period, while some will change at the bank’s discretion.

If you are thinking of making a change from a fixed income product to another type of investment, carefully consider what risk you are exposing yourself to, advises Stander. The security of the principal amount is sacrosanct.

“Diversification into different asset classes is an important rule of investing, but it is essential to decide in advance the proportion of investing in the various categories. While there should be regular reviews, investments must not be switched for negligible changes in interest rates. Investments should form part of a greater financial plan, so speak to your financial adviser or broker before making any hasty jumps from one product to another.”