Fixed Deposit Interest
Fixed-term deposits offer an opportunity to achieve a comparatively good return with a secure investment, even in times of low interest rates. With fixed-term deposits, investors can calculate very well, because the interest rate is often fixed for years in advance when the contract is signed. How much return the money will bring in the end is therefore already fixed at the beginning. If you have a sum of money that you are unlikely to need in the foreseeable future, you should find out about fixed-term deposits - and compare the various offers from the banks.
Many people with large financial reserves wonder how to invest this money. Because the traditional savings book hardly plays a role today, call money and time deposits are two basic alternatives for investing money. If you want to maintain liquidity and attach importance to having access to the money at any time, you should opt for a call money account - with comparatively low interest rates. If you can do without the availability of large sums of money for a long time, however, a time deposit is the more lucrative option.
The amount of interest on time deposits depends on this
The starting point for the level of interest on time deposits is, of course, always the general interest rate trend. In times of high interest rates, time deposits are particularly attractive, but even in times of low interest rates, time deposits regularly offer somewhat higher interest rates. Why is this so? Fixed-term deposits are characterized by the fact that a certain amount is left with the bank for the long term. This gives the financial institution a certain degree of security and the opportunity to work with the money invested by the customer. In return, higher interest rates are offered than for call money accounts, because with the latter there is always a risk for the bank that the customer will withdraw higher amounts. Thus, the decisive factor for the amount of interest on time deposits is primarily the term.
- The longer the term, the better the fixed interest rate.
- If early termination is contractually possible, this usually has a negative effect on the fixed interest rate
- New customer bonuses often grant increased interest rates for a limited period of time
It is not only the interest that counts
If you want to invest your money not only safely but also profitably, you should pay attention to other conditions in addition to the interest rate. While the interest rate usually provides a good orientation when comparing offers, other factors can also have an impact in detail:
- New customer bonuses (usually only for a limited period, such as the first year).
- How is the interest paid out?
- Annually to a call money account? In this case, the compound interest effect is lower
Only at the end of the term? The interest is then not immediately available, but it increases the compound interest effect
Interest payout: compound interest and final withholding tax
The compound interest effect is an important variable that many customers only notice at second glance. As the name suggests, this effect refers to the fact that interest accrues over time even on amounts that have already been earned through interest. The longer the term of a fixed-term deposit contract, the greater the effect of compound interest. However, it is only made possible by the fact that the interest remains in the fixed-term deposit account. If, on the other hand, the interest is paid out annually - for example, to an overnight deposit account - the effect is smaller. This is because overnight deposit accounts generally have lower interest rates. The interest rate is therefore not the only decisive factor for the return. The conditions for paying out the interest also play a major role in the case of time deposits.
The state also levies a flat-rate final withholding tax on time deposits, which is collected directly by the bank. It amounts to 25 percent of the interest earned on cash investments. An exemption order can be used to prevent the tax from being paid directly by the bank to the tax authorities, as long as the income does not exceed 801 dollar for singles or 1,602 dollar for married couples. If you have neglected to issue an exemption order, you can claim the tax paid as an income tax prepayment in your tax return.
Fixed-term deposits are particularly interesting for people who are less interested in high and uncertain profits than in security. The decisive factor is essentially the term of the individual fixed-term deposit contract. Long terms can be profitable - but in low-interest periods only if the interest rate trend does not change. Short fixed-term deposit terms leave open the option of being able to react to interest rate changes, but they offer only manageable yield prospects that are barely above the yield of an overnight deposit account. However, those who have high reserves and invest part of their assets in fixed-term deposits generally do not go wrong. In general, however, not all of the assets should be invested in fixed-term deposits, of course, in the interests of diversification. By using different forms of investment, for example shares, funds, fixed-term deposits and commodities such as gold, you can spread the risk of the investment. In addition, you can achieve a balance between riskier investments such as shares, which provide a sufficient return, and safe investments such as fixed-term deposits, which prevent a complete loss of the saved capital.
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