Following the significant increase in the key interest rate by the Central Bank of Russia, savings accounts have become extremely attractive as a simple, reliable, and profitable investment of available funds. However, not all banks offer fair and favorable terms for clients; and if you miss a hidden checkbox or button, you can lose all or a large portion of your interest.
Table of Contents:
- What is a deposit?
- Pros and cons of deposits
- How to open a deposit correctly
- How to get the maximum interest rate
- Hidden conditions and tricks
What is a deposit?
Many people are familiar with the Central Bank’s key rate. This figure is, figuratively speaking, the zero meridian for banks: they use it when calculating interest on loans and deposits. In fact, these two services are inextricably linked.
A deposit is an opportunity to lend money to a bank for temporary use, with the aim of receiving it back later with interest. Typically, a deposit is opened for a predetermined term, and the client’s income is determined by the interest earned at the time of the agreement.
The bank uses the money it receives from the client as a deposit to generate income—for example, by issuing loans. The loan interest rate is usually higher than the deposit interest rate; this difference is the bank’s income. Of course, we’re simplifying things greatly, but in reality, the process is much more complex and varied.
Pros and cons of deposits.
A bank deposit is considered one of the safest investment methods—and until recently, it wasn’t the most profitable. However, the guarantees remain the same, and the interest rate has increased attractively.
Pros:
- Safe. All deposits are state-insured up to 1.4 million rubles.
- It’s simple. No need to develop investment strategies or buy real estate.
- Understood. Typically, the terms of return on deposits are much simpler and more transparent than in other investment schemes.
Cons:
- Freezing of funds. This is a mandatory condition of any deposit. It’s impossible to withdraw funds, or even part of them, without loss, even if you desperately need them. When the deposit is closed, all accrued interest is lost.
- Inflation. In some cases, interest on your deposit may not even cover rising prices and the depreciation of the national currency. As a result, you’ll end up with more rubles, but you’ll be able to buy the same things with them.
- Bankruptcy. If a bank fails or closes, the state will only reimburse you 1.4 million rubles—you’ll have to claim the rest of the money from the bankrupt bank through legal action, which is usually a lengthy process.
How to open a deposit correctly.
There are several factors to consider when opening a deposit to avoid regrets and losing your hard-earned money:
- Bank status. The lower the bank’s status, the more attractive the interest rates it usually offers. For peace of mind, it’s best to choose systemically important banks that are well-known. If a bank has government funding, that’s a plus; the chances of it closing are much lower. However, smaller regional banks may not be the best choice.
- Deposit amount. State deposit insurance covers up to 1.4 million rubles—this covers all of a citizen’s accounts at a single bank. For maximum protection, don’t deposit more than this amount; you can even deposit less to account for future interest. But what if you want to invest a larger sum? Divide the money into 1.4 million installments and deposit them in different banks, or in the same bank, but into accounts for multiple family members. The latter option is advantageous for another reason.
- Taxes. Deposit income is subject to a 13% tax. The bank automatically reports all payment and payment terms to the tax office; you don’t need to do this. There’s a certain minimum annual interest amount that’s tax-exempt, and it depends on the current key rate. If you spread the money among several relatives, there may be no tax at all.
How to get the maximum interest rate
Interest rates vary from bank to bank, and even within the same bank, you may receive different terms depending on your deposit settings. Let’s go over the main ones:
- Compounding. This means that accrued interest will remain in the bank each month and be added to your deposit. As the deposit amount grows, so will the income from it. If you don’t plan to use the interest from your deposit (for example, to pay rent with it), then enable compounding—the final income will be higher, purely mathematically. Some banks also increase the interest rate for those who don’t withdraw interest monthly.
- “New Money.” Gazprombank, for example, offers this enhanced feature. This means you deposit money from another bank or from cash; in other words, the deposited funds are new to that particular bank. As a reminder, by law, you can transfer up to 30 million rubles per month between your SBP accounts without a fee, so taking advantage of this feature is very easy.
- Online deposit. Some banks offer a 1-2% higher interest rate if you open and fund your account online in your personal account, rather than visiting a branch and taking up staff time. RNKB, for example, offers this option. Opening a deposit yourself is easy; try avoiding bank employees.
- All payments at the end. Similar to compounding, but not quite. Compounding involves gradually increasing the amount and earning interest on it, while “all payments at the end” requires depositing the entire desired amount at once and receiving interest on the last day of the deposit. Interest is not credited monthly, but calculated for the entire year. The downside of this option is that you cannot manage either the money or the interest. With compounding, banks sometimes allow you to receive interest one or more times: for example, at T-Bank, you can choose each month whether to credit the interest to your deposit or your main account.
- Deposit term. Banks often offer different interest rates for different lengths of months. This depends on the bank’s forecasts for future key rate changes. Typically, interest rates on deposits with terms of 24 months or longer are the lowest; however, deposits with terms of 2-3 months often offer the highest rates. Review all available terms to choose the most favorable one.
- Non-replenishable. Some banks increase the interest rate for deposits that won’t be replenished after opening. It would seem that the more money the better for the bank, but it’s not that simple: when replenishing the deposit, the rate, income, and interest will have to be recalculated later, and the bank values stability above all else. T-Bank, for example, has a “Non-replenishable Deposit” increase button.
Hidden conditions and tricks
Since banking is strictly regulated by law, you’re unlikely to encounter outright fraud. Most bank tricks are aimed at misleading you.
For example, you go to the bank’s website and select a deposit calculator. Enter your amount, select the term, and see a 20% interest rate in large print. But upon closer inspection, you’ll see that this rate only applies if capitalization is enabled, new funds are available, a Premium subscription is activated, and so on. If you overlook this and open a deposit, you’ll receive a lower interest rate and be wrong.
Withdrawal conditions also vary. In some cases, banks allow partial withdrawals immediately after opening, in others, after 2 or 3 months, and some banks don’t allow partial withdrawals at all. If you think you might need the money later, be sure to clarify this detail.
There are also some other considerations regarding deposit closing. If you didn’t withdraw interest from your deposit and then decide to withdraw all the money early, you’ll get back exactly what you deposited. However, if you were paying interest monthly and spent it, all that money will be deducted from your refund when you close the deposit.
