Deposits are a type of banking operation through which the financial institution has the ability to save and protect the money that has been deposited by a customer. There are several types of deposits and among them we can find the fixed term deposit , which is considered one of the safest ways to save.
A fixed term deposit consists of a deposit that is agreed in a determined period of time which is agreed between the client and the bank and in which the interest rate is established according to the amount and the term .
- Fixed-term deposit characteristics
- What is it for
- How does it work
- Advantages of a fixed-term deposit
- Importance of the fixed term deposit
Fixed-term deposit characteristics
There are several characteristics that represent the fixed term deposit, among them the following are mentioned:
- This type of deposit does not allow the client to withdraw the money that has been saved in the account.
- The balance of the deposit not increase with the passage of time.
- In order for the bank customer to be able to use the funds that have been deposited, they must wait until the expiration date of the same.
- The minimum amounts will always be subject to the type of currency and may change depending on the banking institution and the country.
- They are susceptible to legal traffic so they can acquire rights and contract a series of obligations at the same time.
- The periods established for this type of deposit may vary but cannot be less than one year.
- The money can be withdrawn before the date but in this case, the client must pay a fine or commission to the bank.
- The interest rates on this type of deposit can be of two types, increasing or decreasing .
What is it for
The term deposit serves to be able to make the economic savings become more profitable . It is functional if you have the objective of saving and generating some interest that will be returned when the deposit ends.
How does it work
The operation of this type of deposit is actually very easy to understand. The client must first request the deposit , then make the deposit of a certain amount of money in the bank which will be safeguarded by the institution for a certain period of time that has been previously defined and then, at the end of the term, the bank will pay. to the client an extra money which is obtained thanks to the interest generated.
This type of deposit must be taxed following the guidelines of the Income Statement as a type of return on capital . In this case, it is necessary to pay taxes only for the benefits that are subsequently obtained, which are generated by interest and it should never be paid on the amount that was initially deposited .
To calculate the time deposit it is important to take into account a number of important aspects. These are as follows:
- Interest : interest is one of the most relevant aspects when calculating these types of deposits, since they are the ones that will tell us the amount of what the bank will give us at the end of the process.
- Term : it is the time in which the money will be kept in the deposit, this will always depend on the client’s needs.
- Capital : refers to the amount of money that will be invested taking into account that some products may or may not require a minimum and a maximum of money to deposit. The more capital, the greater the benefits that can be obtained.
- Profitability : which must be 1.25% of the APR ( profitability of the product for a year ).
For example, if you have a capital of 50,000 euros, with a fixed-term deposit you could obtain a profit of 312.5 euros. This is calculated as follows:
For twelve months : € 50,000 x 0.0125 TIN = € 625 gross
For eighteen months: € 50,000 x 0.0125 TIN / 12 months x 18 months = € 937.50 gross
Advantages of a fixed-term deposit
Among its main advantages we can mention the following:
- It is a very safe type of investment for the client who makes the deposit and also, it will always be backed by the bank.
- Their interest rates are much higher than those of a savings account and these can be paid on a monthly basis, when the term expires or in advance.
- This type of deposit, depending on the amount, can be used as a guarantee to request a money loan .
- The subscription of the title for the amount that has been stipulated is completely free.
- They can be carried out by anyone who has reached the age of majority and who also has legal and civil capacity that enables them to acquire rights and obligations.
- It provides the option of appointing one or more beneficiaries in such a way that, if the holder dies, the beneficiaries will be able to withdraw the funds with their respective interests without the need to carry out any judicial procedure.
Among its main disadvantages we find that, to be profitable, term deposits must be made with large sums of money since low amounts do not generate good interest and are not interesting for most clients. In addition, by having fixed interest, clients could lose money if interest increases. Finally, users cannot dispose of the money deposited, which generates an immobilization of finances.
Importance of the fixed term deposit
Time deposits are important for many clients as they represent a simple way to safeguard their money in the form of savings , which, depending on the amount deposited, can generate great benefits thanks to the interest generated during the established term.
- A customer who deposits 10,000 euros in his fixed-term deposit for one year. The interest rate is 0.80% so at the end of the twelve months, the client will be able to withdraw their money plus 80 euros of interest earned