Why choose a term deposit?

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the agreed term expires will then pay withdrawal costs or an interest penalty, usually a percentage of the amount withdrawn.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.