Bank Investment Contract (BIC)

A bank investment contract (BIC) is security, or portfolio of securities, which offer a guaranteed rate of return. A bank offers such a deal for a predetermined period, usually one to 10 years. These contracts typically yield lower interest rates but at a lower level of risk, which make them suitable for investors seeking to preserve wealth rather than grow their wealth.​​​​​​​

Bank investment contracts are similar to guaranteed investment certificates (GICs), which are issued by insurance companies. Although these contracts usually include relatively low-risk securities, they are very illiquid. Investors who buy these contracts are generally required to leave the money they invest in them for the duration of the contract.

One advantage to BICs is that unlike certificates of deposit (CDs), bank investment contracts often allow subsequent incremental investments, with those deposits earning the same guaranteed rate.

In exchange for a bank’s customer agreeing to keep deposits investment for a predetermined, fixed period, the bank, in turn, guarantees a specific rate of return. Payments of Interest, as defined in the contract,  and the return of principal invested happens at contract expiry.

Although certificates of deposit (CDs) offer similar guarantees and low-risk profile, they differ from BICs because BICs often allow for ongoing deposits. A CD requires one lump sum investment to receive a specific rate of return. A BIC, however, usually includes a “deposit window” of a few months. During this window, subsequent deposits can be made and receive the same guaranteed rate. Limits may exist on the total amount invested.

As with most types of bank deposits, the guaranteed rate of return is higher for more substantial deposits and over longer time frames. For example, $100,000 invested for ten years can be expected to earn a higher rate than $20,000 which is invested for five years.

A BIC would generally be considered a “buy-and-hold” investment because there is no secondary market for such contracts. They tend to yield more than savings accounts and CDs because they are not Federal Deposit Insurance Corporation (FDIC) FDIC- insured deposits. They also generally generate more than Treasury notes and bonds because the U.S. government does not back them.

Often BICs allow for early withdrawals under specific conditions before the contract expires. These may include the depositor becoming disabled or suffering financial hardship. However, early termination of such agreements often requires fees be paid to compensate the bank for administrative services and interest rate risk the bank may face when approving an early withdrawal.