Saving money on a demand deposit account (DDA) is a common and well-known practice that has a number of advantages. If it is a regular account on demand, you can always use any amount of money without notifying the bank. If it’s a savings account, you earn a small amount of interest on the sum of money invested. However, this practice of using free money has no potential for growth because inflation often eats up the interest on the deposit, and there is no real capital gain. If you want to be able to earn a much higher return on the money you hold, you need to open an investment account.

When Were Investment Accounts Introduced?

The idea of creating investment funds appeared in the 18th century in the Netherlands, but its modern incarnation took place in the United States almost a hundred years ago. Initially, a small number of mutual funds reached a convincing number of 100 by the middle of the century. 

However, these funds were marginal compared to traditional banking structures. And only at the end of the 20th century, when investors who used them began to receive incredible returns, these funds fell into the spotlight of a majority of investors.

The final turning point in their popularization and proliferation was the Great Recession of 2007‒2009, which showed their effectiveness.

Features of Keeping Money in an Investment Account

There are a number of differences between a banking demand deposit account (DDA) and an investment account. The main ones are the following:

• By depositing money into a savings account in a bank, you do not control their future fate but only receive interest and the deposit itself. The bank independently manages your money, deciding where it should be invested.

• Keeping money in an investment account assumes that you personally or with the help of professional advisers decide what to invest your money in (stocks, bonds, securities, etc.) and keep it in this form, making a profit. You can also choose to keep your money as cash.

• Money deposited in a bank account is insured by government agencies such as the FDIC (or Federal Deposit Insurance Corporation) if you have an insured account type. However, investment accounts are not covered by the FDIC.

Opportunities to Take a Portfolio Line of Credit with an Investment Account

Another feature of investment accounts is that you can borrow from a financial service provider. In this case, those assets that are stored in your account act as collateral. If the borrower does not repay the regular debt payments on time, the provider simply takes these assets for themselves.

• On the one hand, this possibility simplifies the procedure for obtaining a loan. 

• On the other hand, the borrower risks their assets, which are completely at the disposal of the lender.

If you prefer loans without collateral, take advantage of the wide network of lenders and financial institutions on the Payday Depot platform. Many lenders that offer payday loans do not require collateral, and you may feel more confident under such conditions.

Experts say that an investment account should be opened if you have already accumulated enough of an emergency fund. It is impossible to withdraw money from an investment account at any moment without notifying the financial service provider. However, if you already have a sufficient supply of money, an investment fund is a good opportunity to increase your capital.