In the realm of investments, understanding capital guarantees and risk-free options is crucial for securing your financial future. While traditional savings accounts and term deposits offer security, Treasury Bills (T-Bills) present a compelling alternative, combining safety with potential for higher returns.

What is Capital Guarantee?

Capital represents the total amount invested in a financial product, including initial and subsequent deposits. When ending an investment, you may:

• Recover an amount exceeding the invested capital, realizing a gain or "capital gain."
• Recover less than the invested capital, incurring a loss or "capital loss."

Capital guarantees ensure that investors will recover at least a portion of their initial investment, providing peace of mind in uncertain economic climates.

Dimensions of Capital Guarantees

1. Proportion of Guaranteed Capital: Capital can be guaranteed fully (100%) or partially (e.g., 90%, 50%).
2. Temporal Horizon: Guarantees may apply at all times or only at specific moments, such as at the end of the investment term.
3. Guarantor: Guarantees can be provided by banks, insurance companies, or specific funds like the FGDR (Fonds de Garantie des Dépôts et de Résolution).

Traditional Safe Investments: Savings Accounts and Term Deposits

Savings accounts and term deposits are traditionally considered low-risk investments. They offer capital guarantees, often backed by institutions like the FGDR, which ensures deposits up to €100,000 per person per bank in case of bank failure. These investments provide security but may offer limited returns, especially in low-interest environments.

Treasury Bills: A Superior Alternative

Treasury Bills, or T-Bills, are short-term government securities that provide a secure, flexible investment option. They are backed by the full faith and credit of the government, making them one of the safest investments available. T-Bills offer several advantages:

1. Security: Like savings accounts and term deposits, T-Bills are considered risk-free due to government backing.
2. Liquidity: T-Bills can be easily bought and sold in secondary markets, providing quick access to funds when needed.
3. Competitive Returns: T-Bills often provide higher returns compared to traditional savings options, especially in fluctuating economic conditions.

The Role of the Risk-Free Rate

The risk-free rate represents the return on an investment with virtually no risk. While theoretical, T-Bills are often used as a proxy for this rate due to their safety and liquidity. Central bank policies, such as interest rate adjustments, directly influence this rate, impacting the returns on T-Bills and other safe investments.

Conclusion

In an uncertain economic landscape, Treasury Bills offer a secure and potentially more lucrative alternative to traditional savings accounts and term deposits. Their combination of security, liquidity, and competitive returns makes them an attractive option for risk-averse investors. At Velesios, we are committed to helping our clients navigate the complexities of investment choices and maximize their financial potential.