Long-term Deposits: Advantages and Disadvantages

In order to receive a stable high income, which can guarantee to its owners bank deposits, potential clients of a financial institutionmust deposit money for a long-term deposit. In this case, a person receives a passive income. But it is at the conclusion of a long-term contract that the interest rate will be fixed at a certain level, and it will be higher than with a short-term deposit. And, as a rule, such a rate is always an order of magnitude higher than when concluding a deposit agreement on other terms. Legislation does not provide for the bank's ability to unilaterally change the interest rate, without the consent of the depositor. But, as practice shows, banking institutions have a lot of tricks with which uninformed citizens in financial matters can suffer losses as a result of long-term investments. The most common of these are:

1. In a deposit agreement, the bank prescribes a floating rate. It can consist of a factor multiplied by the discount rate. If the official discount rate decreases, the deposit rate decreases.

2.By placing deposits in banks, the client can sign a contract, which will fix the condition on revising the interest rate downwards with the prior consent of the depositor. In practice, it looks like this: the bank sends a letter indicating a rate cut. If the client agrees with such terms, he must confirm this in writing for the prescribed period. If the depositor does not agree to reduce the interest rate, the bank suggests that he terminate the contract ahead of schedule, but here the interest on such a deposit will be paid in view of its premature withdrawal. Naturally, in the financial plan, the depositor will suffer at the same time. Proving something in court is also not always possible, because when concluding a contract, the depositor signed under the conditions under which the bank can offer him a lower interest rate.

A significant disadvantage that long-term bank deposits of individuals is the risk of losing money in the event of a crisissystem - early withdrawal of deposits is not provided. Banks, in turn, benefit from attracting money for long-term deposits. In this case, they get free access to the management of these funds at their discretion.