If you have money sitting in your current account that you do not need immediately, a fixed-term deposit can be one of the simplest ways to keep your money safe and help it grow. A bank deposit may not be exciting, nor is it a way to get rich quickly, but that is precisely where its strength lies. A bank deposit is protected by the national Guarantee Fund, the interest rate is known and guaranteed in advance, and your money is not simply sitting in an account where it gradually loses value.
1. Safety first
A deposit opened with a bank in Estonia is protected by the national Guarantee Fund up to €100,000 per depositor per bank. This means that, should anything happen to the bank, the depositor’s money is protected up to €100,000 in each bank registered in Estonia.
It is important to make a clear distinction between a bank deposit and a deposit with a savings and loan association. A savings and loan association may offer a higher interest rate, but it is not covered by the national Guarantee Fund protection that applies to bank deposits. Some associations’ deposits may be protected by a separately established fund, but this operates on a smaller scale, does not apply in all cases, and is not available at every savings and loan association. Before choosing a higher interest rate, it is therefore worth understanding the risk that comes with it.
2. The best deposit rates may not be offered by your home bank
Many people place money in a fixed-term deposit with the same bank where they have their everyday current account. In reality, you do not need to have a current account, loan, card or any other services with the same bank in order to open a fixed-term deposit. You can open a deposit with the bank that offers suitable terms and the best interest rate.
It is always worth comparing deposit rates across different banks. A difference in percentage points can mean a noticeable difference in interest income when the amount is larger or the term is longer. Smaller banks generally offer higher deposit rates than larger ones. For example, Holm Bank usually offers the best deposit rates in Estonia for both short-term and long-term periods.
3. A larger amount can be flexibly divided between several deposits at the same bank
The idea behind a fixed-term deposit is simple: you place your money on deposit for a set period and earn a fixed rate of interest. Before entering into an agreement, it is worth considering when you may actually need the money. Even if you cannot foresee every expense, it is sensible to divide a larger amount between several deposits at the same bank. If something unexpected happens, you can terminate one deposit and leave the others to continue earning interest. Terminating a bank deposit generally means that you lose the interest accrued up to that point, but banks do not usually apply penalties, and you can access your money quickly.
4. Deposits are also suitable for smaller amounts
Depositing money does not require large sums. Many banks allow you to start with as little as one hundred euros, making deposits suitable also for those who are taking their first steps towards saving. A fixed-term deposit can also be useful because the money is kept out of sight, making it less likely to be spent accidentally or on impulse.
A fixed-term deposit can also be a good interim solution if you have sold property, are saving for a home deposit, or are waiting to make a larger purchase. Instead of simply keeping the amount in a current account, you can place it in a fixed-term deposit to earn interest.
The basic rule of depositing is simple: make sure the deposit is secure, compare interest rates, read the terms and conditions, and choose a period that suits your plans. This way, even a conservative way of placing money can do its job.
5. Interest calculation for a shorter period
You can also place money in a fixed-term deposit for a period shorter than one year. Interest is still calculated on an annual basis. For example, if you deposit €5,000 for six months at an annual deposit rate of 3%, the calculation is straightforward: on this amount, you would earn €5,000 x 3% = €150 per year, so for six months the amount would be half of that. The calculator on Holm Bank’s website calculates the interest income accurately.
6. Interest calculation when automatic renewal is selected
If you choose automatic renewal for your deposit, it is worth knowing that the new period begins with the terms and interest rate in force on the renewal date. This means that if, for example, you open a deposit for a period of 12 months and choose automatic renewal, then one year later, when the agreement is renewed automatically, the interest rate applicable on the renewal date will apply. It is therefore worth reviewing deposit rates before the agreement is renewed and switching banks if you wish. If, however, you want to secure today’s interest rate for a longer period, it is worth choosing a multi-year agreement. At Holm Bank, fixed-term deposits can be opened for periods from one month to five years.
As an Estonian bank, Holm’s aim is to offer the best choices for depositing money. At Holm Bank, interest rates on both short-term and long-term deposits are usually among the highest offered by banks. This week, until 7 June, all deposits opened with Holm Bank have an annual interest rate of 3%. This makes it easy to calculate how much your savings could grow.
Holm Bank offers term deposits for private individuals and business clients.