Deposit is Definition of concept, conditions, interest rate

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

A deposit is a way of placing funds in a financial institution, which can be a commercial bank, an investment fund or a microfinance organization. Investments are made taking into account three main factors: safety, multiplication and transparency of the system. The conditions for placing a deposit are prescribed in a special agreement between a financial institution and an individual (legal) person.

The contractual obligations specify the subject of the contract, the method of calculating interest, the amount of the interest rate, the possibility of replenishment and many other nuances. At the end of the term, the owner of the funds must receive an initial deposit, as well as an increase in the deposit. What nuances should be taken into account, what to pay attention to, we will consider later in the article.

Basic definitions

To understand the essence of bank deposits, it is necessarydeal with the basic definitions. The latest are given below:

1. A deposit is a voluntary placement of funds in a commercial organization to receive benefits in the form of bank interest. To ensure that the interest rate is met, the structure must earn these funds on a more profitable investment. Therefore, bankers invest in securities of other commercial banks or the Central Bank of the Russian Federation with a more favorable interest rate. Please note that deposits are practically not used for lending to individuals or companies. This is associated with a high degree of risk.
2. Interest rate is a fee for the use of deposit funds, which the client makes to the bank. The higher the rate, the more favorable the terms of interaction. It should be noted that in modern practice simple and compound interest are used. In the first case, the amount actually turns out to be fixed, in the second, the increase is performed not only for the main, fixed amount, but also for the increase in the previous period (capitalization). The interest rate may differ depending on the bank, type of currency and term of placement.
3. Term of placement is the period for which money is placed in the bank. Currently, there is a division into revocable and irrevocable deposits, which differ in the possibility of early withdrawal of funds. As noted above, the interest rate depends on this, because there are a number of risks for the bank.

That's enough to navigate a complex and rather unique system.

Why do we need deposits

Deposit deposit –it is an opportunity to enrich each side of the transaction. For an individual or legal entity - the interest rate that the bank promises. And for the financial structure, the same income, but for a less liquid investment and with a large percentage. Please note that such functioning is beneficial not only to bank employees and ordinary citizens, but also to the state. The chain helps regulate some macroeconomic indicators:

• regulate the rate of circulation of the money supply in the market;
• correction of inflationary processes due to changes in supply and demand for money;
• accumulation of resources for individual public or private programs for lending to the population, business;
• Interest rate adjustment for investment proposal.

Monetary policy for the state is considered one of the most acceptable and convenient management tools, and the deposit is part of a single whole.

How does the system work?

To use the services of banks, it is enough to consider the available offers. Based on the definition, the main differences rest on the interest rate, the long-term placement and the possibility of recall. Some structures create artificial barriers for depositors in the form of a minimum deposit amount.

After considering the available offers, it is necessary to open a deposit. To do this, a contract is drawn up, which indicates the main positions regarding interaction. This document predetermines the fulfillment of obligations bybank.

It should be noted that many people incorrectly think that financial institutions use all client funds at their own discretion. This is not entirely true, because some conditions for commercial structures are dictated by the Central Bank. It determines the percentage of all received deposits that must be kept in this issuing center. The remaining funds are most often directed to investment projects, extremely rarely to lending to individuals and legal entities.

Main types of deposits

Deposit deposit is a fairly broad concept that has various variations and types. For a complete picture, consider the main groups:

1. Short-term and long-term. They differ on the basis of the period of placement of funds in the banking structure. Usually in practice up to a year is considered short-term, over this period long-term. The longer the period, the higher the interest rate. It is more profitable for the bank to attract long-term loans, since the income from them is also higher.
2. By type of currency: issued in national and foreign. The interest rate differs according to the specified factor, while it can vary significantly. This is associated with the stability of banknotes, as well as with the policy of the state.
3. Fixed and floating interest rate. Often, banks offer a floating rate, which depends on the adjustments of the Central Bank. Especially often the latter manifests itself with long-term investments and downwards. Read contractual obligations carefully.
4. Possibility of withdrawal or replenishment. The contract provides clear distinctions, which are stipulated in the conditions for the provision of services. Most banks welcome deposits, but not withdrawals. Although the opposite also happens.
5. For individuals or for commercial persons. Conditions for business and ordinary citizens differ significantly. This also applies to the amount of investments, and the possibility of a return in case of bankruptcy.

Having considered the main types of deposits, we can move on to the variety of interest rates used by banks.

Types of interest

There are two main types of interest rates. In the first case, the usual one implies a fixed accrual for a given amount. The final cost is not adjusted due to changes in the form of capitalization, since it simply does not exist. Often, interest is returned only after the expiration date.

The second type is called the compound interest rate and involves the accumulation of funds every day, week, month or other period. The most common is the monthly replenishment of the deposit account. The presented option is considered more acceptable for the client, as it allows you to increase funds exponentially.

Simple interest

Interest on deposits is called simple when accruals are made once at the end of the reporting period. Often, banks prescribe an annual rate and use it. To calculate, you will need to find the percentage of growth from the amount of the initial cost of the deposit, and then add it. Please note: if the calculation is in days, weeks or months, you must divide the interest rate by the number of periods in a year (365, 52, 12).

Examples of calculating simple interest

Today, deposits of this type are rarely used, which is associated with competition in the financial services market. It is necessary to attract a client so that he invests in this particular banking structure and in no other. As for the example, it is as follows:

• deposit placement period - 3 years;
• simple interest - 10%;
• deposit amount - 5000 rubles.

How much money is handed out at the end of 3 years? In fact, the client will receive 1,500, and the total amount will be 6,500 thousand rubles.

Compound interest (capitalization)

Modern deposit accounts are most often accompanied by the use of compound interest. This is due to the need to compete in the market, to attract more banknotes. The formula is specific, you can evaluate it in the picture above. Please note that the increase is carried out exponentially and depends on the number of periods of keeping money on the deposit.

Example of calculating compound interest

For a closer look, let's evaluate the following problem:

• placement period - 3 years;
• complex accrual rate, rate - 10% subject to capitalization once a month;
• deposit amount - 5000 rubles.

What amount will be given to the client after3 years? The depositor will receive 6655. The benefit is obvious! For calculation it is better to use special calculators.

Is it profitable to invest in banks?

This is a rather complex question that is difficult to answer. There are a number of features that can bring both positive and negative effects for the user of banking services. On the positive side, the client saves money from depreciation, that is, banknotes do not lose their purchasing power.

Under various conditions, you can win on the exchange rate difference that occurs due to a change in the exchange rate of a foreign currency to a national one. If a person invested money in dollars, the exchange rate of which increased significantly due to sanctions, then he received much more rubles in fact. It happens vice versa, because a person can keep funds in domestic banknotes.

As noted by some experts, deposits for individuals are not considered a highly liquid and profitable instrument. It only allows you to save money, subject to the stability of the economy. There are too many risks in this area.

How to open a deposit?

To do this, you can use a simple and understandable sequence of actions:

1. Select a financial institution. This is done through special sites - information generators.
2. Visit the official web resource of the bank, make sure that the desired option for placing interest-bearing deposits is available.
3. Visit the bank and make a deposit with the signing of contractualobligations. In some cases, you can open a deposit online.

That's enough to open a personal account. In the future, track the results in Internet banking and receive a refund by the due date.

Sberbank: deposits

Currently, Sberbank is considered the largest commercial bank of the national plan. It is here that the majority of citizens constantly place deposits, which allows you to secure your own funds and receive a guaranteed percentage. Among the best deposits, the following should be highlighted:

1. "Without a passport." This is a new, unique deposit that can be made through the Internet banking system. The minimum amount is 50 thousand rubles, but without the possibility of withdrawal. The term of placement is 5 or 12 months, while the interest rate is 7%.
2. "Save". Another good option for saving accumulated funds. The rate is 5.15%, while the amount of the down payment is 1 thousand rubles. Please note that the presented deposit option cannot be replenished, the rate is fixed.
3. "Replenish". A kind of deposit with a lower percentage - only 4.7%, but with the possibility of replenishment. This helps to gradually add cash to get a decent amount of output.

Deposit deposits of Sberbank are not limited to this. There are other options that can be found directly on the official website of the bank.

Conclusion

Deposit is an investmentindividuals or legal entities to special accounts in banks or other financial organizations to receive benefits in the form of accruals at interest rates. On the modern market, there are various conditions for offers that differ in a number of factors: the duration of placement, the type of currency, and so on.

All funds on deposit are managed by institutions that are independently enriched by investing in individual instruments and securities. As for the benefits of investing in CB, it all depends on the amount, period and other features mentioned above. In today's realities, the risks are high and do not allow reducing inflationary processes.

As a passive income, bank deposits are not ideal. It is better to use revocable short-term solutions that will allow you to get the corresponding benefit while reducing risky processes.