Let’s clarify terminology first: banking deposit is amount of money delivered by the physical or legal person to the bank in order to get income in a form of interest. This interest on deposit is formed in a course of financial transactions.
For example, money of one individual is attracted in a form of deposit and issued to other individual in a form of credit. Thus, the commercial bank acts as financial intermediary between the people, ensuring needs of both parties.
It is brief explanation about the deposit. We suggest considering an issue – why it is necessary to open the deposit in the bank and how to use it.
Types of deposits
Deposits with fixed period can be divided in few categories – long-, medium-, and short-term deposits. The long-term deposit anticipated period over 12 months. Mid-term is for 3-9 months and short-term – for 1-3 months.
If you deposited money on your bank account under conditions of fixed period deposit, it is advisable do not withdraw funds from the bank before date indicated in the agreement, otherwise you do not get interests on your money or receive less. Every bank has its own policy in relation to deposits and conditions. Using you funds in a form of deposits for certain period, the banks calculate their costs for this period. It is worth to say that all terms and conditions of the agreement on deposit are usually discussed in the bank.
Deposit “on short notice” is opened regardless of term, goals and amount
Deposit “on short notice” supposes a possibility to use bank account, as a rule, with not high interest rate or without interest at all. Money can be withdrawn from account anytime. Additionally, the client can transfer money to account of other person, entity or cash it through cash office of the bank or ATM machine.
Methods of interest charging
Interest is without capitalization. Interest, which is charged by the bank at the end of deposit term, is just added to amount of deposit before the client takes it from the bank or decides to prolong agreement with the bank. For example, if you deposit 1000 soms for one year period under 10% interest per annum, after one year you would get 1 100 soms on your account.
Amount of interest, which was charge, will appear on account once a month. Interest can be charged also once a quarter, half a year, year, etc.
Amount of deposit stays the same, but you get stable income.
Interest is with capitalization. Capitalization supposes that interest for period indicated in the agreement will be added to amount of the deposit. Next period, interest is charged on amount of deposit plus already charged interest.
Difference, at first glance, is insignificant, but if amount of deposit is big, capitalization of interest would be substantial addition to the interest rate.
Saving deposit. Money can be deposited with certain regularity at this deposit during whole period of validity of the agreement with the bank. Interest will be charged with consideration of replenished amount. Such type of deposit is convenient for those who have constant monthly income, and wish to save and accumulate their finance.
In this article, we briefly described theme about types of deposits and methods of interest charging. In next article, we will tell you why it is important to save money, and what are guarantees for that?