FAQs
Here are the answers to all your questions on terminology, processes, and more.
Is fixed interest safe?
An investment carrying a fixed interest is usually considered safe; just how safe, however, will again depend on several factors that include but are not limited to the investment type in itself and the creditworthiness of the issuers. Also, there could be an external threat of inflation.
Key Considerations:
- Safety of Fixed Interest Investments:
- Investments like government bonds and certificates of deposit (CDs) are generally viewed as safer because they are often backed by government entities or insured financial institutions.
- Corporate bonds, being fixed-interest investments, are at the mercy of the financial stability of the company concerned and, therefore, more risky than government-backed instruments.
- Creditworthiness:
- The safety of fixed-interest investments can be considered related directly to the credit rating of the issuer. Issuers with higher ratings have less chance of default and, therefore, are more secure for investors.
- Inflation Risk:
- One weakness of fixed interest is its vulnerability to inflation. This is because as inflation goes up, the real value of fixed returns decreases. This may lead to a fall in real return during this period, though the nominal return stays the same.
In conclusion, while fixed interest investments are considered safer, the level of security depends on factors like the issuer’s reliability and the impact of inflation on the real value of the return. One Pacific Trust provides expert guidance to help investors navigate these considerations, ensuring that investment choices align with their financial goals and risk tolerance.
