Long-term bank deposits - a short guide

Bank deposits, are they always a perfect investment solution guaranteeing one hundred percent return on capital plus earned interest?

Obtaining a financial surplus - great thing, but what next? Each of us needs financial security, it gives a sense of certainty that even in a crisis situation we have a certain margin of time and resources. However, storing capital on a basic savings and checking account makes us stand still (keeping money in a sock is an even less effective idea). Therefore, a good solution in this case may be an investment in long-term deposits.

What is a long-term bank deposit?

Virtually everyone has heard about the banking product called a deposit, most of us also have a vague idea of ​​what its mechanism is all about. A bank deposit is a kind of agreement concluded between a bank and its client.Simply put; the customer transfers his savings to the bank, which the latter may use for a specified period of time. For "renting" the capital, the bank pays a commission in the form of interest.

Deposits are divided into short-term and long-term - the latter are concluded for at least 12 months, although the most common on the market are 24 and 36-month ones. In addition, they can be broken down into another category - revolving, which is automatically re-established upon termination, and non-revolving, upon expiry of which the bank's customer receives their invested savings back together with the interest accrued.

Features of a long-term bank deposit

The mechanism of operation of the deposit does not seem to be difficult to use, especially if you also learn the basic principles of its operation. When deciding on this method of investing, you must first of all be familiar with the interest rate. A big advantage of a long-term deposit is the fact that when you set it up, we know in advance how high interest rates will affect our account throughout its duration. Unlike other options, such a deposit is stable and unchanging, regardless of what is happening on the financial market. If interest rates fall, the owners of long-term deposits are in a privileged position - such a decrease does not apply to them. On the other hand, unfortunately, they are also not affected by the increase in interest rates, thanks to which investors in short-term deposits with variable interest will earn more.

The interest rate on a long-term deposit usually fluctuates at one averaged level - the longest deposits are slightly more than 4% per annum. The relationship is simple - the longer we entrust the bank with our money, the higher the profit will be. Time is important in this case - it should be remembered that the money invested in this way is frozen. In most cases, although they can be recovered before the maturity of the deposit, it is associated with the loss of the accrued interest. Therefore, a longer time at which the bank disposes of money has its - correspondingly higher - price.

The interest rate on the deposit may also differ from the standards in certain cases. Some banks offer their clients special promotions, e.g. higher deposit interest rates for new clients. Sometimes you can also negotiate the percentage - although in this case you need to have a lot of capital. Few banks decide to enable negotiations without specifying a minimum customer contribution threshold.

The type of capitalization, i.e. the way in which interest is included in capital, is also extremely important for the amount of earnings that can be earned. Two basic methods can be distinguished - compound interest and capitalization at the end of the investment. Compound interest is a solution that is much more beneficial for the client - during the term of the deposit, the generated interest is added to the basic amount within smaller periods

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billing, thereby increasing its value. Subsequent interest is calculated on the higher base value. In the event of termination capitalization, the base amount remains unchanged throughout the term of the deposit, and interest is paid with it only at the end of the contract.

Long-term bank deposit - for whom?

In fact, in the case of long-term deposits, there are no special restrictions that would make them an elite product. Of course, the basic condition for starting such an investment is having a certain amount of free funds.

However, long-term deposits will certainly work for people who do not have a lot of knowledge in the field of finance and are not specialists in this field. The simplicity of the solution and the fact that it is stable allow even laymen to take advantage of it.

Also, people who do not have much time in everyday life should like this option. Having a fixed interest rate saves you from having to track fluctuations in interest rates. However, you can enjoy the stability of your investment and the certainty of earning additional funds.