What is a bank deposit? How to open a profitable deposit in a bank

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

The most common type of investment in many countries of the world is a bank deposit, which is called a deposit in economic terminology. This choice is due to the rapid and rapid development of the economy and the investment sector. What is a bank deposit and why is it so popular? The immediate accessibility and simplicity of this method of investing, saving and increasing funds attract ordinary citizens. But few people can really give an exhaustive answer to the question of what a bank deposit is. But this is the basis of economic literacy.

What can be called a bank deposit?

Deposit is money transferred to the bank at a certain percentage for storage. After a certain period of time, these funds are subject to return. What is a bank deposit? It's not just money. Vlad can be securities, contributions, payments, precious metals, and even real estate. Even without special knowledge in economics and investment, it is easy to track the state of affairs in the market in order to be aware of differentfactors that affect the financial situation of the region. It would seem that everything is simple: you need to deposit the required amount in the selected bank and just wait for the deadline to collect the interest. Depositors, in their majority, require certainty in the services provided to them, which includes a constant interest rate. What does it mean? A person wants to have profitable deposits in banks, that is, at the right time to receive the entire amount, taking into account the interest that characterizes the profit. The average layman is not interested in economic factors and trends. That is why deposits are so popular and honorable.

The impact of inflation

If a person plans to solve all his financial problems with a deposit, then he will be disappointed. Basically, almost any bank provides an interest rate slightly less than or equal in level to inflation. What does it mean? If you decide to open a deposit in a bank, then be prepared that inflation will “eat up” almost all profits. Naturally, a bank deposit can significantly slow down this process, but in matters of increasing capital, the deposit is irrelevant. But do not refuse deposits and underestimate them. The vast majority of established and successful businessmen and investors somehow keep part of their capital in the form of bank deposits. In this case, such a choice is dictated by the investment strategy, which includes taking into account the expected risk and probable profit. As you know, a bank deposit is one of the safest ways to invest money.

In most developed countries, there are special organizations and funds that guarantee the return of invested funds to customers in the event of a bank failure. This factor must be taken into account by novice investors. Before you carry your money somewhere, you need to understand well what banks, deposits, deposits are, look at the ratings of the offices of interest, familiarize yourself with the offered promotions, interest rates and deposit conditions. Any additional information will be useful when building your investment portfolio.

Demand deposit

There are two types of bank deposits - urgent and demand. The essence of the latter is that you can withdraw money from your account virtually at any time. However, there is a significant disadvantage of such a system - the interest rate is extremely low. That is why this type of investment is unpopular and unprofitable.

Term deposit

This type of investment is characterized by a higher interest rate. The profit in this case depends on the term of the deposit and on the amount. The more capital is transferred to the bank, the higher will be the percentage of profit. What is a bank deposit under a fixed-term contract and what are its disadvantages? A significant disadvantage is that it is impossible to withdraw money at any time. It is also impossible to replenish the invested amount. But the terms of placement are the widest - from several days to decades. To attract customers, banks make compromises. The bottom line is that you are allowed to withdraw a certain amountdeposit, but set a certain limit. The interest rate will be different from the term deposit, but there is the possibility of replenishing the account.

Currency for depositing

Today it is not difficult to invest in a variety of world currencies. However, in all countries the most popular deposits are in the national currency, euro and US dollars. Foreign currency deposits usually have lower interest rates and, accordingly, bring less income. To date, multi-currency deposits have become very popular. They are characterized by accounting for each currency separately. As a rule, such deposits are formed on the basis of a compromise deposit - taking into account the minimum balance and the possibility of replenishing the account. A very convenient function is the transfer of currency to another at the current exchange rate on the interbank market. Interest on deposits in banks with a similar function is usually selected individually for each client. This makes multi-currency deposits popular with traders, brokers and dealers in the foreign exchange markets.

Interest rate on a bank deposit

To form an investment portfolio, you need to understand the basic concepts. There are two types of interest rates - floating and fixed. The first can change under the influence of public financial institutions that regulate the market. This happens when various factors, both economic and political, are taken into account. The fixed rate is directly established at the time of signing the contract at the beginningterm and will remain the same all the time until its expiration. In floating, the bank is obliged to guarantee some kind of minimum profit, but it is almost impossible to unambiguously predict the level of income.

It is also necessary to mention such a term as "capitalization". It means that the funds that are accrued will take into account the size of the deposit itself plus interest received for a certain part of the period. It is necessary to take into account the possibility of capitalization when planning your own investment portfolio and calculating the probable profit.