Published 24.10.2023

To Deposit or Not to Deposit? What to Consider

To Deposit or Not to Deposit? What to Consider

Recognizing that regular current accounts do not make your money grow is crucial. Inflation eats away at it, and the interest rates are minuscule (if they exist at all), making it easy to spend your money. For anyone with some money in their current account who wishes to prevent it from being spent too easily, there is an opportunity to place it in a fixed-term deposit to let it grow. Chief Financial Officer of Holm Bank, Madli Pindmaa, delves into the intricacies of depositing and explains why you should open a fixed-term deposit and why you should do it at a bank.

Starting with why choose a bank for depositing.

First and foremost, this relates to the security of deposits. Deposits of depositors of all credit institutions registered in Estonia, ie banks, are protected up to €100,000 per person by the state Deposit Guarantee Fund. There are nine such banks in Estonia, and their names are listed on the Deposit Guarantee Fund's website.

Will I earn enough with deposits?

Deposit interest rates have soared to great heights over the last year, surpassing the 3.4% inflation projected by the Bank of Estonia for the next year. Some banks already offer a 4.5% interest on deposits for a 12-month period. Such high interest rates for all deposit periods, whether short or long, are available only at Holm Bank this October. For instance, if you deposit €10,000 to grow for five years at an annual interest rate of 4.5%, the total return on the deposit will be €2,283.75, meaning that the accumulated interest rate after five years will be 22.8%.

When is the right time to open a deposit?

Saving and safely growing savings is always wise, especially when deposit interest rates are so high. It's a situation to take advantage of because you are likely to see the halt of deposit interest rate increases sometime in the future, followed by a decline.

Growing self-discipline.

Money sitting in a current account is easy to spend. However, when you deposit your money into a fixed-term deposit, it is securely held there, preventing it from being spent too lightly. You will surely think twice before terminating a deposit because cancelling it will result in the loss of already accumulated interest income. Always review the terms and conditions before entering into a contract to understand the most reasonable course of action when you want to terminate it.

Smart depositing.

If you think you might need some of the money before the deposit period ends, it's a good idea to open several smaller deposits instead of one large one. In this case, you can terminate one of the deposits when the need arises, while the others continue to earn interest income. The number of deposits you can open is usually not restricted in banks. At Holm Bank, you can start a deposit with as little as €500.

Highly intelligent depositing.

If you want to invest more time in planning your finances, you can even create a depositing plan and use deposits of different durations. In this case, you can build a depositing plan where deposits end regularly, providing you with interest income to use while long-term deposits continue to earn.

In conclusion, it's an excellent time to open deposits right now.

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