Time deposit is a financial instrument that pays a fixed rate of interest until a certain maturity date. Time deposits offer investors a higher interest rate than a regular savings account and also offer many other advantages that make them a preferred option for investing.
What is fixed deposit?
With a time deposit, interest is only paid at the end of the investment period. This is unlike normal savings accounts, where interest is calculated daily and is usually paid out to you at the end of each month. Since the investment period and the interest rate are fixed, you can easily calculate the amount of interest that you will receive at the end of a fixed-term deposit.
How does a fixed deposit account work?
One of the most unusual features of a fixed-term deposit account is that the money cannot be withdrawn for a certain period of time. The term of the term can vary between one month and five years.
When investing in a fixed-deposit investment, you are usually offered several options for the duration, such as: B .:
- 1 month / 3 months / 6 months / 1 year / etc.
Each term is associated with a predetermined interest rate. For example, banks usually report their fixed-term deposit rates in a table similar to the following table:
| duration | Interest rate (% pa) |
|---|---|
| 1 month | 3,00 |
| 2 months | 3,00 |
| 3 months | 3,05 |
| 6 months | 3,10 |
| 12 months | 3,15 |
This means that if you opt for a fixed deposit with a term of 3 months, you will be entitled to an interest rate of 3.05% pa after three months.If you invest 10,000 EUR for 12 months with an interest rate of 3.15%, you will receive on maturity Your fixed-term deposit has a return of 315 EUR. When your fixed-term deposit is due, you can transfer your balance to another fixed-term deposit account offered by other banks with better interest rates.
The interest rate may be higher than the standard interest rate depending on the amount of your money. If you are looking for the highest possible returns, you need to compare the terms and rates of all banks. For this you will find a time deposit calculator below this text.
Time deposit comparison / time deposit calculator
Advantages of fixed deposits
Return is guaranteed
The main advantage of investing in time deposits is the guaranteed return. The returns are usually higher than the returns you would get for a savings bank account. However, the returns vary depending on the duration and the amount of the investment. Make sure that you do not want to use the money in the fixed deposit account for other purposes before the agreed term has expired, as this can have an impact on your return due to early withdrawals.
Higher interest rate than with a savings account
The interest rate for fixed deposit accounts is higher than that for regular savings accounts.
Emergency liquidity
Fixed-term deposits are liquid, which means that you can easily convert the money you have invested into cash in the event of an emergency or urgent need. However, you will then be charged a penalty fee.
Flexible terms
Time deposits have flexible terms. You can open a fixed deposit account for less than 7 days.
Risk management
Financial instruments like mutual funds, gold, etc. can be very rewarding, but they are also very risky. In order to offset this market risk, it is important to invest in so-called debt instruments such as fixed-term deposits. Time deposits will help you manage this risk as the returns are guaranteed.
Disadvantages of fixed deposits
As attractive as fixed-term deposits may be, they are not necessarily suitable for everyone.
Inflation reduces returns
One of the biggest drawbacks to investing money in time deposits is that the returns are low compared to other investment options. When inflation is very high, fixed-income investors are hardest hit as the income from fixed-term deposits may not be enough to offset the devaluation caused by inflation.
No diversification
If someone invests all of their money in time deposits, they cannot take advantage of the diversification that comes from investing the money in stock markets, real estate, gold, and other alternative investments.
taxation
As far as taxation is concerned, fixed deposits are taxed at normal tax rates, so that, unlike infrastructure bonds, there is no tax benefit from this investment.
Flexibility / liquidity only with penalty fees
Since your money is often locked in the bank for months, you also lose the flexibility of a regular daily savings or current account. If you withdraw your money from your fixed-term deposit account before the agreed due date, you will likely be penalized with reduced interest or penalties.
English 
German 