A term deposit, or deposit for short, is one of the best investments if you are sure that you can do without an amount of money for a longer period of time. Not only is the interest rate higher than on a regular savings account, but the interest rate is also fixed for the entire term. The advantages (and disadvantages) of saving on a term deposit.
What is a term deposit?
People save on a term deposit for a pre-agreed period. During that period you will not have access to your money and you will receive a fixed interest rate that cannot change during the term. For a deposit, a distinction is made with terms ranging from several weeks to several years. As a rule, the longer the term, the more interest.
Withdrawing money from term deposit
You cannot usually withdraw money from a term deposit before the agreed term has expired. Sometimes banks make an exception. Anyone who wants to withdraw money from a deposit before the agreed term expires will then pay withdrawal costs or an interest penalty, usually a percentage of the amount withdrawn.
Interest on term deposits
The interest on term deposits is credited periodically:
- as a rule, on a linked payment account (contra account);
- one can also choose to have the interest added to the capital.
Interest capitalization creates an effect of compound interest ( interest on interest ), which further increases the ultimate return on a savings deposit.
When do you choose a term deposit?
It is best to invest savings in a deposit if you can do without it for a longer period of time. This does not necessarily have to be a period of several years, because there are also deposit contracts with a term of several weeks or months.
Advantages of a term deposit
- Highest interest rate : fixed interest rate guaranteed for the entire term, an advantage, especially in times of falling interest rates;
- Risk-free: you have the certainty that the interest rate will not decrease during the term.
- Without costs: no closing costs, no management costs or costs on the maturity date.
- Return: with a higher deposit you often receive a higher interest rate .
- Freedom of choice: you choose the desired term and the savings deposit yourself.
- Deposit Guarantee Scheme : The Deposit Guarantee Scheme also applies to savings on a savings deposit
Disadvantages of a term deposit
- Limited availability: in principle, you cannot have access to your money during the term unless you pay a penalty interest.
- Minimum deposit: sometimes banks have a minimum initial deposit that can sometimes be quite high.
- Additional deposits are not possible on a savings deposit ;
- In times of rising market interest rates, the interest on your term deposit does not rise.