Stock Market-Linked Savings
With respect to savings and investment, stock market indexes provide a basis on which to 'link' investment savings accounts. These accounts agree to increase your savings by the respective amounts with which the linked index increases or decreases, by actually investing the funds you save in the companies charted on that index. In comparison to regular saving and investment options, stock market-linked accounts have greater potential to earn you large investment returns, despite having no interest rate to guarantee investment earnings. This is because when companies are successful the value of their shares increases, thus increasing the value of the shares you hold.
The profit you would make from selling these shares would usually outperform investment returns you would have gained from the interest rate offered on conventional saving accounts. Historically, trends suggest that savings invested long-term in stock market-linked accounts have earned greater returns than those saved in a standard interest-earning savings account. Nonetheless, historical trends cannot guarantee future ones, and stock market-linked accounts are high risk investments; companies can also perform badly, share prices can crash and you can lose huge amounts of money.
Stock market-linked accounts are offered by many different financial institutions, with links to a range of different stock market indexes, and so there are a range of investment options available. Many financial institutions will also allow their customers to dictate wholly or partially the companies in which their funds should be invested. In this way, every consumer group is catered for: for example, you can choose only to invest in ethical companies. The FTSE4Good Index is an index which tracks companies who meet a series of specified ethical standards. Although historical data cannot be relied on to predict future events, it can provide approximations as to how volatile a particular index may be and therefore how secure your investment should be.
As with other banking accounts, stock market-linked accounts are available from most banking institutions. Despite the variety of accounts available, in terms of how they are linked to the stock market most accounts will generally fall under one of the following categories:
