A term Deposit is the placement of funds in Russian rubles or foreign currency account in the Bank for a definite period which can be from one month to several years. Bank deposits kept with the Bank within the prescribed period and is returned to the depositor with interest. Currently the interest rates on deposits in Russian banks usually range from 5% to 12% per annum and vary depending on Deposit term, Deposit amount, Deposit currency and a variety of additional conditions.
In the classic form of a time Deposit is a placement of funds in the account in the Bank for a fixed term without possibility of early withdrawal without penalty with interest paid at the end of the term.
However, the additional conditions of the term Deposit may be a possibility of replenishment or partial withdrawal of funds from the Deposit, with presence of minimum balance required, monthly or quarterly payment of interest on the Deposit with possibility of their capitalisation or without this capability, the payment of a certain percentage for early withdrawal. These kinds of deposits to additional terms now offers an abundance of commercial banks, however, interest rates on them are usually a bit lower than in case of classic term Deposit.
The advantage of the term Deposit in comparison with other types of investments is almost 100% money back guarantee with a known interest. Since all deposits are insured by Agency on insurance of contributions, even in case of bankruptcy of the Bank payments for deposits are made in full (currently in the range of 700 thousand rubles). Thus, minimizing the risk of partial loss of the Deposit, it is recommended to place funds within the above amount in different banks or in different individuals.
Despite the guarantee of return of investment, term deposits are still some risks. First of all, currency risk. None of the Deposit is not immune to sudden changes in currency contribution. In addition, there is inflation risk when inflation in the country may exceed interest rates on term Deposit and the real amount of money with interest returned by the Bank will be less than the initially contribution (adjusted for inflation).
However, banks are trying to account for these risks and in periods of high inflation or volatility in exchange rates generally offer higher interest rates on term deposits.
When choosing a Bank must take into account at least the position of the Bank in the rating of banks and the Bank’s participation in the Deposit insurance system and the proposed percentage. As a rule, small banks that need more cash, offer a greater percentage than the large state-owned banks. It is important to choose the Golden mean, and the percentage was decent and the rating of the Bank is high enough. If the Bank offers a very high rate of the Deposit – for example, 12% or more must more carefully examine the proposed contract for the presence of “gotchas”.