What is a term deposit? They are the sums of money contributed by people to a financial institution to receive the interest generated in a set time. The saver or investor becomes the creditor of the bank. Now we will know the types of bank deposits that we can contract.
What are term deposits?
Now let’s know the definition of term deposits. In term deposits, we deliver money to a financial institution such as a bank or credit union for a particular time. At the end of this period, the entity returns the money plus interest, previously known. Interest can also be paid periodically during the term of the deposit. These interests will be credited to our checking account associated with this deposit.
Classification of term deposits
Then the classification of term deposits: fixed-term deposits, renewable term deposits, indefinite fixed-term deposits, and repurchase agreement deposits.
Time deposits
The deposits are fixed a day of interest payment. The amount accrues interest only to that particular date.
Fixed-term deposits
The deposits renewable fixed term are fixed deposits. Still, they can extend the deposit for a new time equal to the initially hired. The renewal has the character of automatic if the depositor does not withdraw the amount. In the new period, the capitalization is greater because it has the initial amount plus the interest accrued in the first period. The renewal interest rate is the one that exists in the market at that time. It does not have to coincide with the initially agreed interest.
Indefinite term deposits
In the case of indefinite term deposits, there is no predetermined time. The saver notifies the financial institution that wants to withdraw the money. The interest is calculated during the period between the initial delivery and the withdrawal of the capital delivered.
Deposits with a repurchase agreement
The deposits under repurchase agreements are invested in sales contracts instruments Chilean government debt and buyback is agreed, they can be stipulated in fixed or readjusted in UF.
Term deposit conditions
The minimum terms range from 7 days for non-adjustable deposits in UF or 90 days for deposits indexed in UF. When speaking of readjustment, it refers to having the deposit and its interests adjusted to inflation’s evolution.
It is noteworthy that the capital cannot be redeemed before its expiration, depending on the financial institution’s consent and that the holder formally requests it. They must spend at least three days between the request and the withdrawal of the amount.
Money-back duration
Mostly, you will not have funds before decided times. As a result, you will not get your money back. You will have redeemable term deposits with a price that you can’t lock into a non-redeemable term. You will pay interest according to the maturity date of the term deposit. We can consider maturity a term deposit birthday rather than a cake slice to celebrate. As a result, you will have an excellent form of interest as it will be a present that we can have behind it.
Deposit uniqueness and other kinds of investments
Here, we will categorize savings into three: short-term, medium-term, and long-term.
- Short-term – It will be suitable for you if you have three to four months of contingency savings. It means you can keep your savings in this account.
- Long-term – It is better for those who want to save their deposit for more than seven years. Usually, it is suitable for retired investors. The amount includes mutual funds, registered savings, and ETFs, etc.
- Medium-term – You consider everything that comes between the matters discussed above categories. This division includes funds you will have to put aside for the assets, such as the home’s down payment, a new car, and a vacation. If your needs match with medium-term financial requirements, the term deposit will be the best choice for you. There is a specific time length that you have full control over.
Main operations for the term deposit facility
There are two main term deposit facility operations: the term deposit facility overview and fixed-rate format or floating-rate format.
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