A deposit is a mechanism for storing funds in a banking institution, when a client provides money for a certain period with the condition of receiving profit in the form of interest.
The essence of a deposit is that the bank temporarily accepts customers' money and uses it for various purposes. For example, the bank can provide loans to individuals or entrepreneurs, invest in government securities (GST), and invest in gold and other precious metals.
In exchange for using depositors' funds, the company undertakes to return them with a certain percentage, which is made possible by investing in various financial instruments and assets. The difference between the amount of investment income and the interest payment remains at the disposal of the bank, which uses the funds to ensure profitability.
Deposit vs Contribution: what's the difference?
Both deposit and deposit have a common characteristic - the transfer of values to the bank on agreed terms. However, not every deposit is a deposit, while a deposit is always a deposit. A deposit refers only to money, while a deposit includes a variety of tangible assets, not just cash.
In addition, there are several other significant differences between a deposit and a contribution:
- A deposit always provides for income, albeit minimal, even 0.1% per year. A deposit may not provide for income under the terms, and in some cases, income may be zero or even negative, for example, if precious metals are invested, the price of which has decreased.
- A deposit can be used as a guarantee in transactions, for example, to guarantee the fulfillment of the terms of a purchase and sale agreement. A deposit is not suitable for such purposes.
- All deposits are insured by the state, however, funds in depersonalized metal accounts are not subject to insurance, since they are not money, but rather units of metal.
A deposit is not just a way of saving, but a tool that helps the bank effectively manage resources, providing consumers with the opportunity to earn a return on capital.
Types of deposits
They are divided into different types depending on the term of placement, type of assets and access to funds. Let's consider the main categories:
By term:
- Term deposits are investments for a specific period, such as several months or years. For fixed terms, rates are usually higher, and it is impossible to withdraw the money before the end of the contract without penalties.
- Demand deposits allow you to withdraw funds at any time, but the interest rate on such transactions is usually much lower.
By the possibility of management:
- Revocable with replenishment - give the right to add funds to the account and withdraw some at will, however, such options have lower rates compared to irrevocable ones.
- Irrevocable without replenishment - have the best conditions for earning, because the owner cannot withdraw the money until the end of the term.
By form of assets:
- For cash deposits, the most common is transferring funds through a bank account.
- For metal deposits, there is an option to receive the metal in physical form or place it on deposits through "depersonalized" accounts.
Benefits of deposits
The main advantage of deposits is the possibility of receiving additional income. But they also allow:
- Protect your savings from unauthorized access. If you are saving a significant amount, it is better to spread it among different institutions, which will ensure security.
- Protect capital from inflation. By choosing the right placement program, you can ensure a return that covers inflation.
- Get more returns on your investments. Proper use of different types of deposits can increase your income.
- A wide selection of programs. Many institutions offer favorable conditions for opening deposits with maximum benefit.
Like every financial instrument, deposits have disadvantages, such as a reduction in the rate upon early withdrawal and the dependence of rates on the amount and term - the larger the amount and the longer the period, the higher the interest rate.
Disadvantages of deposits
- Low returns. Interest rates are usually lower than other investment vehicles, particularly stocks. However, it is worth considering that stocks do not guarantee a stable income and are subject to market fluctuations.
- Restrictions on the use of funds. If a consumer withdraws a deposit before its maturity, most banks impose penalties and interest is significantly reduced. However, some financial institutions offer options with the possibility of partial withdrawal of funds without loss of interest.
- Top-up restrictions. Many programs do not allow top-ups and the entire amount must be deposited upon opening. However, in some cases, the option may be available.
- Inflation. Typically, the income from a deposit is not able to fully cover the inflation rate. This can lead to the real value of the deposited funds decreasing after the interest received.
In case of early closure of the deposit, the bank will charge interest at the rate before the request. This is usually the minimum interest, about 0.01%. As a result, the customer may lose a significant part of the income. If there is a possibility of early withdrawal, it is wiser to open a savings account and deposit funds there.
How to open a deposit at a bank?
When you have free financial resources and want to save them with benefit, opening a deposit is an option that allows you to receive additional income. This is a classic and popular tool that allows you to increase your savings due to its clarity and accessibility.
The process of opening an account is attractive for its simplicity: you can be sure of the safety of the deposit, the stability of income and a certain period of interest accrual. When you have chosen a reliable banking institution and selected a suitable program, all that remains is to transfer money to the account and start receiving income. Let's consider how to open a deposit, what documents are required for this, and what you should pay attention to during registration.
The identification process takes approximately 30 minutes. Therefore, it is recommended to plan your visit in advance. The procedure is a one-time procedure for new clients, and subsequently opening a deposit will take only a few minutes.
During subsequent requests for identification, you must present the same document that was used during the first registration.
To confirm your identity, you must provide an internal or international passport of a citizen of Ukraine and a taxpayer identification number.
Additionally, there is an opportunity to identify yourself using an e-passport through the "Diya" application, where you will also need to indicate the code located on the back of the document under the barcode and confirm the provided electronic copies through the application.
Other documents that may be needed
If you are a pensioner and plan to open a deposit under special conditions, provide your pension certificate. For example, some banks may offer a higher interest rate (for example, by 0.25%) if you have a pension certificate.
If you are a private entrepreneur, the bank may ask you to provide documents confirming your taxpayer registration.
Control of the source of funds
It is important to remember that when opening a deposit for an amount exceeding UAH 400,000 or if there are politically significant individuals in your circle of friends, the bank may require confirmation of the sources of your funds.
Documents that can confirm this include:
- Salary certificate;
- Papers confirming property sale agreements;
- Tax return;
- Bank account statements.
- Minimum deposit amount
The minimum amount to open a deposit depends on the institution, so it can vary from 1,000 hryvnias to several tens of thousands of hryvnias or the equivalent in currency. In cases of special profitable deposit programs, the opening amount may be higher.
Opening a deposit
- Through online banking. Check the website to see if you can go through identification for new customers and open a deposit online. Some banks offer registration via video call or by submitting documents through online banking. This is a very convenient way: you can always monitor the status of the deposit, its renewal and accrued interest.
- Visiting a branch. Many customers prefer to open a deposit in person, and this is understandable. Bank websites usually contain information about branch opening hours and interactive maps to help you find the nearest branch.
How to top up the deposit?
It is not necessary to top up your account on the same day you open it. You can top up within the next five business days using any convenient method: through a cashier or online bank transfers. It is important to remember that interest will start accruing from the day after the funds are credited.
Opening a deposit for another person
To open a deposit for a third party, you must issue a special order containing this person's identification data.
By following all the recommendations, you will be able to open a deposit with maximum benefit and convenience, avoiding misunderstandings during the registration process.
How to choose a deposit?
Before choosing the most profitable deposit, you need to determine your goals. The steps you take to open one should depend on the term and purpose of your savings.
One of the key aspects is determining whether you will be able to quickly access funds if needed. If you open a deposit and foresee the possibility of closing it early, you need to be prepared that in this case the interest rate may be reduced.
The lowest rate is usually offered on a demand deposit. It can be around 0.1 %, but in some banks it goes up to 1.5%.
One of the profitable options is deposits with interest capitalization. However, not all deposits offer this option, so when choosing a format with interest payment at the end of the term, you should pay attention to the maximum market rate. According to the latest increase in the base rate, the highest income is offered by deposits with a yield of 16% and more.
It is important to take into account additional conditions. For example, in some institutions, in order to receive the maximum rate, it is necessary to fulfill certain conditions. These may include placing a certain amount for a specific period, active use of the card, having the status of a pensioner or salary client, or subscribing to a paid tariff.
No less important are the conditions for early termination of the contract, because in some cases, banks pay only part of the interest if the funds have not been deposited for the entire stipulated period. It is important to consider the moment of opening so as not to miss the opportunity to receive maximum income.
Which currency is better for storing savings?
The choice of currency depends on the economic situation. Hryvnia deposits may be the most profitable, when their profitability is higher than that of foreign currency deposits. However, to reduce risks, it is worth opening deposits in different currencies: half of the funds in the national currency, and the rest in dollars and euros. Then, even if one of the currencies depreciates, the other may increase in value.
How else can you increase your rate?
You should familiarize yourself with the offers. Sometimes, even the same program at the same institution may have more favorable terms depending on whether you make a deposit through an online bank or a mobile application.
A deposit is an important financial instrument for storing and accumulating funds, which allows you to receive additional income from interest. It offers customers favorable conditions for preserving capital, providing a certain stability even in difficult economic times. The choice of the type of deposit depends on personal financial goals and needs, so it is important to carefully consider the term of placement, the possibility of replenishment and the level of interest.
