Things You Need To Know About Time Deposits
When it comes to investments, there are umpteen options which are available to us in the financial marketplace. Each investment differs on the grounds of risk it involves and the returns is promises to yield. Stocks and shares are potentially high return yet risky investments ; real estate and property is definitely a win-win investment but not an easy one to make. Keeping that in mind, one must choose carefully, in order to maintain a balance between the returns on investments and the risk factor involved in a certain type of investment.
If you are looking to make a potentially risk free investment, then one of your first choices should be investing money in a Time Deposit. Beside real estate, time deposits are one of the most popular and trusted long-term investment options available to you.
What Is A Time Deposit
A Time Deposit is a great way to earn sizable returns on your saved funds. Considering that other deposit account options like a regular savings account will only allow you to earn interest as low as 1%, a time deposit is definitely a much more lucrative option. Time deposits are basically a type of bank deposit which feature fixed interest rates, along with a fixed tenure.
With a time deposit, customers can invest a certain sum of money which will be put away for a fixed period of time and will earn interest at a fixed rate during that time period. Time deposits are usually characterized by higher rates of interest and longer investment tenures. One of the primary distinguishing features of a time deposit is that the depositor cannot make any withdrawals from the account for the duration of the investment. However, once the tenure of the term deposit is over, you have the option of either withdrawing the entire amount or re-investing the amount, along with the accumulated interest, for another term to maximize your capital growth. If the aforementioned has piqued your interest , read on to find out more about the benefits, interest rates and other information which can come in handy before making this investment.
Time Deposit Interest Rates
In Philippines, interest rates on time deposits do vary from one bank to another but overall, most banks offer interest rates which are competitive but fall within a particular range. Interest rates also differ depending on the duration for which the deposit has been made. The longer the time period of the deposit, the higher is the interest you are likely to earn on it. Interest rates accumulated on a time deposit investment are usually paid when the time deposit matures. Payment schedule or a time deposit may be on a quarterly basis, semi-quarterly basis, semi-annual basis or an annual basis.
The primary reason why term deposits earn you higher interest rates is because these deposits are held in the bank for a relatively longer pre-specified time period than other investments. As a result of the longer lock-in period of this investment, the bank of financial institution has access to the deposited capital, which it can lend forward or re-invest to gain higher returns, before the deposit finally matures at the end of its tenure.
Also, one of the primary benefit of investing in a time deposit is that unlike a savings account, the time deposit will specify the rate of interest which you will be earning and on what basis will it be credited to the deposit account.
Time Deposit Tenure
One of the main characteristics of a time deposit is that it is done for a fixed time period. The minimum term for a term deposit is typically set at 30 days, going on to 60, 90, 180 or 360 days. Here are time deposits which can also be made for longer terms which could be 2,3,4,5 or 6 years as well, depending on the terms of the investment.
Benefits of Time Deposits
- Time deposits yield some of the highest returns on your invested capital, depending on the duration of the deposit.
- A time deposit promises assured returns on the investment.
- Time deposits are fairly simple to set up and comprehend, as compared to other types of investments like property or stocks, which do require the expertise of a trained professional in the field.
- The risk factor involved in time deposits is definitely negligible when compared to other investments like property or stocks.
- As an investor, you get to decide for how long you’d wish to invest your money.
- When it comes to the tenure of a time deposit, there is a range of options to choose from. You may deposit your money for as short a duration as one month, up to longer durations like or 7 years.
- You also get to make the decision on the frequency at which you’d like to receive your interest payments, depending on the tenure of your deposit.
- Choose how you’d like to receive the interest you earn on your deposit. You can have the interest credited directly to your bank account, reinvest the collected interest or opt to be paid the interest by cheque.
- Since the amount put away in a time deposit cannot be withdrawn till the end of the term, it becomes easier for you to save as the interest rate remains fixed.
Time Deposit - Points To Remember
Before investing in a time deposit, here are a few things which you must be aware of in order to make an informed decision.
- A time deposit will not allow you to touch or withdraw the invested funds, until the tenure of the deposit is over. So, if you are thinking of investing in a time deposit, ensure that your financial stability will not be affected if your savings are locked away and untouchable for a certain period of time.
- Some banks do allow customers to pre-close their time deposits. But in such cases, there is almost always a penalty which will be charged from you to withdraw your money before the tenure is over.
- Incase of an unavoidable emergency when you absolutely must withdraw your money from the time deposit, the bank will allow you to cancel your time deposit. However, in this case, you will be required to pay a certain amount towards release charges, which would depend on the duration of the time deposit still remaining.
- The more frequent your interest payment, the lower the rate of interest will get.
- Given that the rate of interest on the deposit will be fixed for the entirety of the deposit term, you cannot seek any benefit from the cash rate increase.
- Bigger and international banks often give customers a choice of currency in which they’d like to open a time deposit.
- You will not get an ATM card or a pass book with your time deposit, like you would with a savings or checking account. Instead, you will get a certificate of the time deposit, mentioning the tenure and interest date of the deposit.
- Upon maturity of the deposit, customers have the choice of either withdrawing the entire amount, along with the accumulated interest or re-investing the capital for another term, which may be shorter or longer.
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