Which of the following best describes a key difference between investing in the stock market and depositing money in a savings account at a bank?

• A. Stock market investments are only available to corporations, while savings accounts are only for individuals.
• B. Money in a savings account is not insured, whereas stock market investments are fully insured by the government.
• C. Both investing in the stock market and saving in a bank account guarantee a fixed return on investment.
• D. Investing in the stock market typically involves higher risk and the potential for greater returns, while a savings account offers lower risk and lower, fixed interest.

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the nature of stock market investments. Stock market investments involve purchasing shares of companies, which can fluctuate in value based on market conditions, company performance, and other factors. This introduces a higher level of risk but also the potential for greater returns.
2. Step 2: Understand the nature of savings accounts. Savings accounts are offered by banks and typically provide a fixed interest rate on the deposited money. They are considered low-risk because the principal amount is usually insured by the government up to a certain limit.
3. Step 3: Compare the risk levels. Stock market investments are inherently riskier because their value can decrease significantly, whereas savings accounts are stable and secure, offering predictable returns.
4. Step 4: Compare the potential returns. Stock market investments have the potential for higher returns due to market growth and dividends, while savings accounts provide lower returns in the form of fixed interest rates.
5. Step 5: Summarize the key difference. Investing in the stock market involves higher risk and the potential for greater returns, while depositing money in a savings account offers lower risk and lower, fixed interest.