The primary risk of the BIC account is the interest rate risk involved in the window feature. Because customers are guaranteed a fixed rate of interest over the life of the contract, if interest rates fall immediately after the placement of the contract, the financial institution may receive larger deposits during the window period than where originally anticipated. The risk is lessened somewhat by imposing caps on the total deposits that the financial institution will accept. If rates rise dramatically, the institution could lose some of this funding at book value, thus having to refund at higher interest rates. Funds can be withdrawn early, without penalty, for benefit payments.
Customers can make multiple deposits during the specific period.
Customers receive an overall fixed rate of return that is more attractive than that offered by other investment alternatives. The Guaranteed Investment Contract is basically the same thing as a BIC, except the contract here is backed by an insurance company. The Daily Investment Fund allows you to invest in the Overnight Eurodollar market and receive higher interest rates generally associated with the Eurodollar market. The interest rate payable on the DIF account is usually established daily, according to existing money market condition. There is no minimum term required for a DIF account.