Fixed Deposit Comparison
Due to the turnaround in interest rates over the past few years, the returns on many traditional financial investments have fallen. If you want to invest the same amount for a fixed term at the bank today, the interest rate is determined on the basis of the current interest rate level. But for some time now, interest rates have remained at an unprecedented low level. Does this make all investments in fixed-term deposits unattractive?
Find out what is important in addition to the interest rate for fixed-term deposits and find out why it still makes sense to invest in fixed-term deposits.
Fixed deposit with fixed interest rate and term
As the name suggests, a classic time deposit is nothing more than a time deposit. In other words, you invest freely disposable capital on a short or medium-term basis and have to observe a specific period of notice.
The national and international money markets have a fundamental influence on the development of interest rates. In particular, the key interest rate of the USA Central Bank (ECB) affects whether the general interest rate level is comparatively high or low.
The fixed interest rate thus depends on two factors:
- Amount of deposits
- Duration of the term
The special feature is that the fixed deposit account is not a simple payment account. So something like a current account for private people or the current account for business people. The entire sum that you put into a time deposit as an investment is not freely available during the agreed term.
If you are looking for an investment that is practically always available as a reserve for private purchases, then time deposits are only suitable to a limited extent. Call money could be an alternative here. However, the interest rates are considerably lower than those of time deposits, at least in theory. This is because many banks offer special interest rates for the first few months and exclusively for new customers.
What is important besides the interest rate
Apart from the agreed interest rate, you should also pay attention to the following:
Consider interest rate level
Similar to the interest rates of construction financing, the interest rate also depends on the current interest rate level when comparing fixed-term deposits. If you agree to invest your money during an interest rate low, the interest rates offered will be correspondingly low.
Term & investment amount
Even with longer maturities, only smaller interest premiums are then offered. The longer you commit to the bank, the higher interest rates you can expect. But even here there are exceptions, for example, by a minimum investment amount. Many banks also limit the investment amount or no longer pay interest for higher amounts.
What has been particularly important in recent years are possible bonus payments on the invested capital. The bank then pays a one-time bonus, which of course also changes the return. However, you should only consider such introductory or new customer offers if you meet the relevant award criteria.
Choose a longer term
Often, fixed-term deposits are only worthwhile from a term of three or five years. Compared with overnight money, where high interest rates are possible for new customers, compound interest is then also effective. Interest credited at the end of each year or contract period is compounded from that point on.
Deposit insurance makes foreign offers attractive
Of course, the question arises as to how safe the investment is in the first place. Especially if the increasing number of time deposit offers from foreign banks is taken into account. Within the USA Union, a statutory deposit guarantee of 100,000 dollar has been in effect for several years. And it applies per customer and bank.
So by dividing larger amounts among different banks, the risk of default can be effectively eliminated. In addition, many countries have privately organized banking associations that have set up their own deposit insurance schemes. They guarantee a much higher liability limit.
However, in case of doubt, it is difficult to legally enforce this claim. It is therefore advisable to include offers from other EU countries. The comparison calculator on FinanceScout24 lists many leading banks and thus increases the possibilities for comparison.
Issue an exemption request
Issue your bank with an exemption order. In USA, a tax lump sum of 801 dollar per person applies, twice that amount for married couples assessed jointly. The bank then credits the interest to the fixed-term deposit account without deducting the final withholding tax. Depending on how much interest accrues per investment, you can also flexibly choose the exempt amount.
Increasing the yield
As mentioned at the beginning, banks have some leeway when it comes to structuring for time deposits. On the one hand, there are possible bonus payments (one-time) or interest surcharges for new customers. The second variant is extremely rare, but it does exist, especially for longer maturities over five years.
Secondly, certain interest rates may be tied to the fact that you have to pay out your interest income to a call money account managed in parallel. And since this, of course, is subject to flexible interest rates, i.e. often worse, you only benefit from the compound interest effect to a limited extent.
Cancelling a time deposit
You should note that there are strict conditions for early termination. In case of doubt, you will no longer be entitled to the agreed interest rate and you will lose all interest payments. Further costs and deductions are to be expected, for example for administration fees or cancellation costs.
The law does not stipulate any requirements in this regard, so it may be that these costs are not insignificant. This can turn the whole thing into a small loss-making business. However, banks have been more accommodating for some time, especially thanks to the growing competition from more efficient direct banks.
In this case, at least the deposited amount is refunded in full. But here, too, the final decision lies with the bank to accept your termination.
Termination for ‘good cause’
If the bank is threatened with insolvency, this may constitute a termination “for cause without notice”. This is regulated in Section 314 of the USA Civil Code (BGB). Such an “important reason” can also exist in cases where, for example, you apply for Hartz IV or the loss of the financed property is imminent. The bank is then obliged to pay out the capital paid in.
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