Savings options for your money
01.10.2019 Share +
Ever wondered why banks care about your savings so much that they even pay you interest? Simply put, your money is almost any bank’s “fuel” for doing business – the money you deposit are being given out as loans and the banks profits from the difference between the interest they pay you as a saver and the interest they collect from lending out money.
What savings options do banks offer?
Savings accounts and term deposits (also called certificate of deposits in the USA) are among the most accessible savings instruments you can get at your bank, each with certain advantages and disadvantages.
If you want access to your money at all time, the savings account (sometimes called “termless deposit”) offers you this possibility since it allows you to withdraw and top-up at any time without losing any interest accrued. You must keep in mind though that the interest rate is traditionally lower than the one offered on term deposits, but higher than the interest on standard current accounts.
The term deposit is the right choice for you if you are looking for an efficient and secure savings product in the longer term - the interest rates is fixed for the entire duration of the deposit and most importantly – it’s higher than the one on saving accounts thus generating higher return for you.
Term deposits can be set up at fixed terms ranging from one month to a few years. The applicable interest rates depend on the chosen currency and tenor an in most cases the longer maturity you go for, the higher interest rate you get.
Some banks offer saving options that are a mix of both above mentioned products – term deposits with interest rate that varies depending on how long you keep your money with the bank. Just make sure you mind the trick here – in most cases, the actual interest rate you’re getting is not the one advertised (the highest possible) but a weighted average of the rates for the different time periods.
What are the costs involved?
Most banks have low or zero commissions for opening, administrating or closing savings accounts or term deposits. You need to pay attention to fees and commissions on cash withdrawal or bank transfer though – it might get expensive, especially if you are transacting in currencies other than your local one. Usually, fees and commissions are higher for products opened in a bank branch than those opened online.
Is my money safe in a bank?
Yes, they are. Almost all countries have local deposit protection schemes that protect customer’s savings – if a bank goes bust, the customer’s money is to be payed up to certain amounts. According to Directive 2009/14/EC, all banks originating from the EU, act under legislation that guarantees all amounts, no matter whether they are on saving/current accounts/or term deposit, up to € 100,000 or its equivalent in other currencies.
This protection is valid per depositor and per bank. This means that if you have saved let’s say 200 000 EUR, you can either distribute them equally between two banks or deposit half of the amount in the same bank at the account of your spouse (or of someone you trust even more).