A deposit is a widely used banking product that offers customers monetary benefits in exchange for saving their money in a bank for a certain period of time. TBC Bank’s regional director, Levan Diasamidze, explains what you should know about how deposits work and what benefits they offer.
What is a deposit and why is it important to keep savings at a bank?
A deposit is money that we place in a credit institution (bank) for a certain period of time, in order to gain interest. Deposits enable us to securely save our funds and, at the same time, benefit from the interest that is earned on the deposit. The advantage of the deposit lies in that the depositor can claim the deposit and the interest accrued on it anytime (unless the contract states differently).
Saving money at a bank is very important for all of us, as no one is ensured against unforeseen circumstances or expenses.
What types of deposit are there and what is the difference between them? (For example, demand deposit vs term deposit)
Despite the numerous deposit products offered on the market, there are two major types of deposit: term deposits and demand deposits.
In the case of term deposits, the deposit holder predetermines the term of the deposit (the market usually offers deposits ranging from 3 to 24 months) and the deposit contract is valid for this period. The benefit (accrued interest) is relatively higher in term deposits, compared with demand deposits.
A demand deposit has no predetermined term, i.e. the customer does not know exactly when he or she will need the money saved on deposit and therefore does not enter into a long-term contract with the bank. Such a deposit offers a lower interest rate and it is mainly used for saving money for a short period of time.
If the demand or term deposit agreement is terminated prior to the agreed date, you will receive the full amount of your original deposit. The amount of interest accrued, however, might be reduced based on the conditions of the deposit agreement.
What should be considered when placing a deposit? What should we pay attention to when choosing a deposit type?
It is very important to pay attention to the following details when placing a deposit:
Choose the right financial institution to entrust your saving to. In addition to popularity and the ranking of the institution, the customer should also consider the interest rate offered because the higher the interest rate, the riskier the investment.
It is very important to choose the type of deposit that properly suits your financial income and needs.
You should also select the right term of the deposit, as this determines the income you will receive.
Also, it is also important to choose the correct currency. As deposit implies saving money for a certain period of time, choosing the wrong currency can result in significant losses so try to save your money in a stable currency.
How should we teach our children the habit of saving money and how important is that for the future generation?
We should start developing a savings culture for our children from an early age. Our children should have a savings box where they save money. The second stage is the spending process. What is important here is to encourage our children to make logical decisions and teach them proper spending habits. This process should also continue into adulthood and eventually become a habit.
What would be your advice on deposits for customers?
All of us need and want to have savings, even if it is a small amount. This often seems impossible, however, if your salary is low. With the exception of some special cases, it is likely possible to have some savings, even just a small amount, which will help you solve problems in the future.
According to experts, it is desirable that the deposit amount be three times one’s monthly income. The psychological factor is also important. Saving brings peace of mind and confidence.