Bank deposits are the first thing that comes to mind when you think of savings. We have all heard what a deposit is, but not all of us have real experience of opening deposits in banks and understand the benefits and possible consequences of placing a deposit. In this article, we will learn everything about deposits and understand what a bank deposit is, how a bank deposit works, what types of deposits there are, and why it is worth having at least one bank deposit.
What is a deposit in simple words
A bank deposit (deposit) is money that you place in a bank deposit account for the purpose of saving and receiving interest.
Deposits in banks are opened in accordance with the terms of the bank deposit agreement, and the person who opens the deposit is called the depositor.
Depending on who places the funds, there are deposits of individuals and deposits of legal entities.
Deposits for individuals in the absolute majority are time deposits, that is, they are opened for a clearly fixed term, while businesses often choose a demand deposit - this is a deposit that can be withdrawn at the first need.
There are long-term deposits that are placed for a year or more, and short-term deposits for a period of less than a year.
In Ukraine, it is possible to place a deposit in UAH, USD and EUR, as well as in bankable metals.
Bank deposits differ in the frequency of interest payments, the possibility of replenishment, extension, partial withdrawal or early termination.
Deposit deposits can be opened in one's own name or by proxy from another person, as well as a deposit for a child.
How to save savings better
A bank deposit is the best place to keep your financial cushion. No person is immune from unforeseen situations: on the one hand, it can be the loss of a job, business or other sources of income, and on the other hand, urgent large expenses. Therefore, even if you have a low level of income, you still need to create a financial cushion for yourself, at least in the amount of your monthly expenses, but it is better to have a reserve of funds for 3-6 months.
The accumulated funds should be divided between different currencies and different instruments: transfer part of the money to dollars, put part on a deposit in UAH, keep something in quick access on a bank card. Among all possible options, a bank deposit deservedly occupies a central place.
Deposit in the bank to keep savings
Obviously, a bank deposit is one of the best places to keep your savings safe because:
- The minimum amount for which a deposit can be placed is usually insignificant and sometimes starts even from a symbolic 100 UAH.
- You cannot dispose of the funds on the deposit until its term ends, so there is no risk of wasting them.
- Deposit money is secure money that cannot be lost due to theft, fire, flood or fraud.
- You can choose any term of the deposit convenient for you: to begin with, you can place a deposit for a month, and later choose a deposit for a year or two.
- Bank deposits and accrued interest are guaranteed to be returned to depositors even if the bank is declared insolvent.
But the most important thing to understand about a deposit is that it is an opportunity not only to protect funds, but also to multiply them by receiving deposit interest.
Bank deposit rates depend on what
The level of interest rates on deposits in UAH is always much higher than rates in foreign currency. Dollars and euros are not very interesting to banks, so they are not ready to pay more than 1-2% per annum for them. Interest rates on deposits in UAH are significantly higher and mainly depend on the level of inflation and the discount rate: the higher the inflation, the higher the discount rate, the higher the deposit rates, and vice versa.
Factors affecting deposit rates:
- Payment of interest. Interest rates on deposits with interest payments at the end of the term are always higher than with monthly payments.
- Possibility of replenishment. Deposits with top-up have a lower yield than without such an option.
- Term of deposit. There is no universal answer to this, it all depends on the market situation and the needs of each specific bank. But usually long-term deposits will bring you a higher return.
- Possibility of early termination. This option always lowers the interest rate, and if you use this option, be prepared to remain without interest at all.
Average deposit rates
UIRD index
The indicator of the average level of deposit rates in banks is the UIRD index. For example, the average UIRD rate on UAH deposits in July 2023 was 15% for deposits for 6 or 12 months, 14.5% for 9 months and 14% for deposits for 3 months. At that time, the maximum UIRD index for the dollar was 1.18% for 12 months, and for the euro - 0.66% for 12 months.
If you look at the latest UIRD figures in UAH as of June 13, 2024, the situation is as follows:
- for 3 months – 13.29%
- for 6 months – 13.15%
- for 9 months – 12.47%
- for 12 months – 12.85%.
As we can see, over the last year average deposit rates have decreased by approximately 2%, only for three-month deposits the drop was less than 1%.
The highest rates
It should be understood that this index focuses only on the largest banks, which traditionally pay low interest rates on deposits. Therefore, interest rates on deposits in the market as a whole will be several points higher than this index, and it is worth monitoring interest rates on deposits on sites where the offers of the maximum number of banks are immediately presented. As of July 2023, you can get 20% per annum on a deposit in almost a dozen banks, and the highest rate on the market is 21% per annum on a deposit in UAH - on average 6% higher than UIRD. And already in June 2024, the maximum rate was 16.25% - 3.5% higher than UIRD, only for a period of 3 months, 1-2 banks still offer 17-18%.
The fact is that the maximum rates depend to a greater extent than the UIRD on the level of the NBU discount rate. During the period from July 2023 to June 2024, the discount rate decreased from 25% to 13%, accordingly, the maximum deposit rates could not help but react to this.
Deposit bonus
In many banks, it is often possible to get an additional premium to the base rate. Such a deposit bonus is mostly valid either for a large amount of deposit or for certain categories of the population: yes, you can often find a deposit for pensioners or a deposit for the military. Also, an increased deposit interest can be obtained in case of extending the deposit, placing a deposit in Internet banking or as part of a promotion.
Tax on deposits of individuals
Deposit tax is a classic income tax, which is paid on the amount of interest accrued on the deposit. Taxes on interest income are a standard global practice, because interest income on a deposit is practically no different from income in the form of wages.
Deposit tax is 18% and an additional 5% military levy is payable. Interest rates on bank websites and in advertisements are always indicated before taxation, so keep in mind that by placing a UAH deposit at 20% per annum, you will get a little more than 16%.
All taxes on deposits are paid for you by the banking institution and you are paid the income on the deposit already after deduction of taxes.
To feel confident in choosing a bank, deposits, rates and other deposit conditions, read our previous materials How to choose a deposit and In which bank is it better to open a deposit.
