Deposit: what is it and why is it needed?
Deposit – storage of funds in banks, which in certain conditions and within a certain period are subject to return. The term “deposit” comes from the Latin language and is translated as “pledge” or “thing deposited.” Under the bank deposits understand the funds that the client sends to the bank with the condition of cash reward. This means that the financial institution puts this money into circulation, then makes a profit and shares it with investors.
Given the time, deposits can be divided into several categories:
1. “On Demand” – such deposits can be withdrawn from a bank, turning them into cash and receiving a transfer at an ATM or at the cash desk, as well as transferring them to the necessary organization or other person. Usually all current accounts of investors belong to this category.
2. Term deposits have a predetermined period when it will be possible to withdraw their deposit. This category of deposits is divided into the following types:
short term (1-3 months),
medium term (3-9 months),
long term (long term).
It should be noted that earlier deposits cannot be withdrawn.
Why invest your money in banks for storage?
To say that it is necessary for security will not. So everyone understands that the method of storing money in a bank is much safer than hiding it at home under a pillow or in a drain barrel.
The main advantage is that for keeping money in the bank, you will be paid interest. That is why, in addition to reliability, the investor also receives a considerable income.
Interest Calculation Methods
Interest is charged in several ways: with or without capitalization, with a certain period and at the end of the term.
If interest is accrued at the end of the term, then the amount of the deposit at a certain point, depending on the amount that is stored in the bank, is a profit, depending on the conditions. That is: if you have 500 dollars on your account for a period of 1 year at a rate of 10% per annum, you will receive 500 + (500 * 10%) = 550 dollars in a year.
Once a month, the bank’s information system will check the amount of your deposit balance, depending on which interest will be calculated.
Income from the deposit can be received once a month, quarter or year. Thus, the amount of the deposit cannot be changed, and interest will be accrued regularly. The methods described above are interest without capitalization.
With capitalization, interest is calculated as follows: if interest is charged every year, quarter or month, then in subsequent periods the income will be taken into account from the total amount of the contribution (together with the addition of these interest).
There are some deposits in which you can add deposits. Here interest income will increase proportionally.
It is important not to take a deposit early. After all, then his income can not be noticed. Consider in advance whether you can do without a certain amount of time for a certain period of time. You should not give your money to the bank, which has high interest rates, compared with other banks. This means that the bank has few depositors and they lure new ones with high interest rates. And there is a possibility that the bank will soon go broke. Keep your money only in verified banks.