What Is a Bank Investment Contract?

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  • Written By: Mary McMahon
  • Edited By: Shereen Skola
  • Last Modified Date: 12 January 2020
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A bank investment contract is an agreement between a bank and an institutional investor, guaranteeing a set rate of return on a deposit. The investor has a window of several weeks or months to make deposits into the account, agreeing to leave them there until the bank investment contract matures. This may occur in one to ten years, depending on the terms of the agreement. Such investment instruments are commonly used for pension and retirement plans, where a set rate of return may be extremely important to ensure enough money will be available. In regions where deposits are insured, bank investment contracts usually qualify for insurance.

The terms of the agreement can vary depending on the needs of both parties. Banks tend to offer a lower rate of return on a bank investment contract than on other investments; what the investor gains in stability and reliability is lost in terms of potential profits. From the bank’s perspective, it wants to use the money on deposit in its own investments, in the goal of generating returns high enough to return the principal, pay interest, and make a profit. In periods of economic slowdown, the rates of return can be especially low.


Institutional investors can include pension funds, employers with retirement plans for personnel, and various government agencies. They may meet with several banks to discuss options and get competing quotes to determine the best bank investment contract for their needs. Negotiations can determine the specific terms, including when the contract matures, and whether the interest rate will be fixed or floating. Floating interest rates can offer some benefits if interest rises, as they may offer greater returns. They can also be risky if the rates fall.

Banks may exercise discretion in how they invest the money to create the right mix of assets for a strong portfolio. Investors can ask for reports on the health of their accounts and also receive regular statements with information about the performance of their investments. Using a bank investment contract can be one among several solutions for investing; it eliminates the need for personally managing a portfolio or hiring a manager, but also generates much lower returns than might be available through handling investments directly.

Customers concerned about insurance can discuss this with representatives. Agencies providing insurance only offer it up to a certain amount, and only when investments are deposited with qualified financial institutions. Credentials can be checked against their databases to confirm that a bank investment contract will be insured. Large deposits may require additional insurance for complete coverage against losses.



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