2024-04-24 04:50:22
However, Bigbank specialists warn that before choosing to invest your money in deposits, you need to know a little more.
What are deposits and how do they work?
A deposit is a product of a financial institution that allows you to keep funds safely enough and receive interest from them. Most often, it is chosen to put money in savings and time deposits. Deposits are always insured by the state.
When a customer deposits a certain amount of money in a bank or credit union, the financial institution uses these funds to finance its operations or simply maintain liquidity, and pays the customer interest for the use. In this way, a person can employ his available free funds and at least partially protect his savings from inflation – the depreciation of money. The amount of interest depends on various factors such as term of deposit, market trends, bank policy, etc.
Why do some deposits offer more than others?
According to investors and financial experts, the return on investment depends on the risk taken – the higher the risk, the higher the return. However, the deposit is a savings product, not an investment product – banks and credit unions are insured according to the same EU standards, so deposits up to 100,000. EUR has an extremely low risk. Why then do some institutions offer more than others?
Ieva Rogozina, head of product development at Bigbank, notes that fixed-rate deposits usually have higher interest rates than floating-rate deposits: “This is because banks want to reduce the risk of a potential customer’s decision to withdraw the deposit and thus manage their liquidity risks . It is true that other factors influence the interest rate: the financial institution’s need for liquidity, market factors, etc.
Some banks operate in different countries and can borrow cheaper in some of them: for example, if a bank has a branch in a country where deposit interest rates are currently lower, it is more profitable for such a bank to raise funds there and in larger amounts than in Lithuania.
In addition, the riskiness of some of the offered institutions is somewhat higher: some neobanks offer investment products similar to deposits, but the money kept in this way is subject to even 5 times less insurance. Also, banks can use such funds more freely and riskier.
Savings and savings deposits are not the same
Generally, you can choose between a term deposit, an irrevocable term deposit, a cumulative deposit and a savings deposit. It is the latter two that are often confused or even identified. It is noticed that they can be described differently by different banks or financial institutions, and sometimes even not quite correctly, which confuses Lithuanians and even reduces their financial literacy. However, according to I. Rogozina, everything is not so complicated – these are different types of deposits that meet different customer needs:
Deadline. Savings deposits can be timed for up to several years, while savings deposits are always open-ended and therefore often more flexible. In other words, saving this way requires less planning.
Interest. Interest on a savings deposit can be fixed, while interest on a savings deposit is usually variable.
Contract termination. If the cumulative deposit contract is terminated before the term, interest may not be paid in some cases. Well, if the interest has already been paid, it may have to be returned in some cases. In the case of a savings deposit, you will receive accrued interest regardless of when you decide to withdraw the deposit.
Cashout. In a savings deposit, withdrawals are usually limited, and from a savings deposit you can usually withdraw money at any time, in many banks – in just 1-3 days, so you can use such a deposit account as one of your bank accounts or simply keep free funds there, save.
If you are interested in time deposits, keep in mind that if you choose this option, you will be able to deposit money only at the beginning of the term, and withdraw it with a profit only after the end of the contract term. Doing so before the end of the term will result in the loss of accrued interest. The interest on such a deposit is fixed in the contract and does not change for the entire agreed term of keeping the deposit in the bank. In other words, term deposits are less flexible but allow you to know exactly how much money you will earn.
Without reading the terms and conditions, the accumulated profits can be quickly lost
I. Rogozina warns that before making a deposit, it is important to carefully read the deposit agreement and study all the conditions: “Some banks have the ability to change the deposit interest at any time. In addition, some financial institutions allow deposits to be made easily, but in order to withdraw money, they begin to require various additional documents that they may have collected during the acceptance of the deposit.”
In summary, several aspects should be considered when choosing a deposit:
the type of deposit – term, cumulative or savings?
Term of the deposit: do you need the money quickly or can you leave it in the bank for a longer period of time?
Interest calculation method: fixed or variable interest?
Reliability of the bank: is the bank reliable and stable?
Interest rates: Compare interest rates offered by different banks and indeliai.lt websites.
Insurance amount – make sure that the service offered by the institution you choose is really a regular deposit and is covered by the usual insurance amount in euros.
2024-04-24 04:50:22