Bank deposits are a fairly popular banking product. It allows you to make small but tangible profits, and it is also one of the safest ways to invest. However, it is important to choose the right offer so that the deposit will be most profitable for us, both financially and in other aspects.
The amount you can earn on the deposit is an issue that probably interests everyone the most. The amount of profit will primarily depend on the interest rate, which directly translates into it. However, the interest rate itself may vary depending on the conditions. This is the case with deposits with a variable interest rate, which changes depending on changes in interest rates. If the Monetary Policy Council decides to raise interest rates, then in the case of variable interest rates we will earn more on the deposit. However, if the situation takes the opposite turn, we will earn less on the deposit than expected. To avoid such a risk, you can choose a deposit with a fixed interest rate that will be unchanged from the beginning to the end of the term of the deposit – its value based on the interest rate applicable on the day of opening the deposit will apply. The interest rate on the deposit may also be affected by the frequency of interest capitalization. Capitalization is adding interest to capital, so each subsequent calculation of interest will already be done on a larger base amount.
Duration of the deposit
When choosing a deposit, you cannot ignore its duration. Generally, we can distinguish long-term and short-term deposits. Usually, the former are slightly more favorable in terms of purely financial – funds work longer on the deposit, and banks often offer more favorable conditions to those clients who decide to invest more. However, this may not always be an advantageous option when considering other aspects. The main thing is that funds from the deposit cannot be withdrawn before its expiry without losing the interest earned. Therefore, if we know that we will need funds in the near future, then setting up a long-term deposit is pointless, because by taking it before it ends we will lose interest or the majority of it. In this case, it is better to opt for a well-interest short-term deposit.