What is the difference between a guaranteed interest account and a segregated fund?

The distinction between a guaranteed interest account and a segregated fund primarily lies in the nature of the returns and the associated risk. A guaranteed interest account is designed to provide a predetermined return on investment, typically with principal protection and no market risk. This means that investors can expect a specific interest rate over a set period, ensuring that their capital is safe and returns are stable.

In contrast, segregated funds are investment products that are similar to mutual funds but offer certain insurance benefits, such as a guarantee on the death benefit or the maturity value. Segregated funds are invested in various markets and can experience fluctuations in value based on market conditions, which introduces a level of risk. The potential for higher returns comes with market exposure, meaning that while the invested capital may be protected to some extent (like in the case of a death benefit guarantee), the actual returns are not fixed and can vary significantly.

By highlighting these key differences, it becomes clear that the guaranteed interest account provides a secure and stable environment with no risk, while segregated funds carry the potential for variable returns based on their market performance, showcasing their inherent risk. This understanding reinforces why the statement addressing the risk discrepancies between the two is the correct answer.