In recent years, especially after the outbreak of the economic-financial crisis, the interest rates that conferred returns on savings solutions – such as savings accounts and term deposits – have plummeted. Depending on the term chosen and the amount deposited, several banks lowered interest rates on term deposits to values close to zero. Even so, before deciding not to opt for this product, consider all the factors that we are going to present to you.
Regardless of these aspects, it is always necessary for the consumer to keep in mind that he must compare the market in order to choose a term deposit that is right for the objectives he wants.
It’s not just the interest rate that you have to take into account when analyzing the various deposits. Get to know the 10 factors to keep in mind.
The amount of the term deposit higher the subscription amount (ie the money you deposit when opening this product), the greater the return you will be able to obtain.
In this feature, you should take into account the minimum and maximum amounts defined by the institutions for each deposit. Currently, the minimum required is €5 and the maximum allowed is €5 million.
Early Refund
You must also take into account the possibility, or not, of making a total or partial refund of the deposited capital – that is, redeeming the accumulated amount before the end of the term.
There are term deposits that do not allow for early capital mobilization, while others allow partial but not full repayment, and still, others allow both types of repayment.
When an early refund is possible, this may not be allowed at any time, as there are pre-determined dates in the contract for this purpose.
However, the customer must understand whether this refund is advantageous to him. Know then that there are essentially four ways for banks to act:
- The customer may make early refunds, total or partial, without any penalties;
- If the customer makes a partial refund, the bank may apply a penalty on the accrued interest of the refunded amount;
- In the case of full reimbursement, the institution may penalize the entire accrued interest;
- And, even in the case of full repayment, the bank can only penalize part of the interest earned.
- Term
This feature is relevant so that the customer knows exactly what period in which he will not have access to the money from the term deposit. These financial products have very diversified terms, ranging from 15 days to 5 years.
The longer the money is in this deposit, the higher the return obtained with interest.
Reinforcements
When choosing your term deposit, check whether it allows for additional capital contributions during the term of the contract.
If you allow reinforcements, find out with the bank the frequency of these reinforcements. These can be monthly, quarterly, semi-annually, or can only be done occasionally, by the client.
Also, find out if the term deposit chosen has a minimum or maximum limit for reinforcements and if it has any commission associated with it.
As a rule, when the reinforcements are previously agreed with the financial institution, there is no room for the payment of commissions. However, it is also common to have commissions for carrying out specific reinforcements.
Interest rates
The interest rates presented by financial institutions on term deposits are the TANB and the TANL.
The Gross Nominal Annual Rate (TANB) is the interest rate at which Schedule 1 taxes are not deducted. The Nominal Annual Net Rate (TANL) is the rate associated with any term investment and represents the amount of interest associated with a term deposit after deducting taxes.
Therefore, whenever you analyze the various term deposits, you should look at the TANL, as it indicates the exact amount that you will receive in interest.
You should also know that there are different tax deductions on interest: 28% for private customers residing on the mainland or Madeira; 22.4% for individual customers residing in the Azores; 25% for companies based on the mainland or Madeira; and 20% for companies based in the Azores.
Note that:
The taxes associated with these financial products are withheld at the source, which means that the consumer will not have to worry about declaring the interest earned to the IRS.
Interest payment method
Interest on a term deposit can be paid in two different ways, depending on the product.
On the one hand, it may be without capitalization of interest, that is, interest is only credited to the current account. On the other hand, interest can be accumulated on the demand deposit capital and be reinvested on the interest already earned in the past, on a continuous basis.
It may also be possible to choose between a periodic interest remuneration or only at the end of the term.
Deposits in foreign currencies
Some deposits may be applied in a currency other than the euro. In these cases, the amounts deposited are only guaranteed in foreign currency.
This means that, in the event of a depreciation of the foreign currency between the contracting and maturity of the deposit, the customer may suffer losses if he wants to convert the amount invested in the deposit into euros.
- Renovations
Term deposit renewals may or may not be automatic. Not all deposits allow these renewals, but when they are possible, they are usually carried out automatically.
If a certain term deposit is not automatically renewable, the customer can request the renewal from the bank, informing the bank in advance of this intention.
Thus, if they are automatic, at the end of the contract, the deposit is renewed and all conditions remain the same. Otherwise, and if the customer wishes to continue with this savings, he can subscribe again to this or another product, which may have different conditions.
Choice of financial institution
Finally, you should not neglect other banking institutions other than the one with which you have had an account for many years (and this is not only valid for term deposits, but also for other financial products, such as home loans, personal loans, or even a credit card ).
It is true that having a previous and more senior relationship with a financial institution can be an asset when you decide to contract any financial product, but there may be other options that are more suitable for you.
Access conditions
All term deposits have certain access conditions. The most basic ones are the need for the customer to have a current account opened in the same banking institution or to be resident in Portugal.
However, some deposits that have higher amounts and interest rates require the contracting of some products and/or services from the financial institution. For example, it may be necessary to open a current account, domicile the salary in that account, or even hire a credit card from the institution.
It is also common for financial institutions to have exclusive term deposits for certain types of customers:
- New customers, which, as a rule, are the most profitable deposits currently;
- Current customers, with whom the bank already has a relationship;
- New features, in which current customers must put “new money” in the institution, that is, they cannot withdraw money from their current account to invest in this term deposit.
Other considerations to consider when choosing a term deposit
The factors presented above are attributes that you should take into account when choosing a term deposit, but we also advise you to pay attention to the European Standard Information Sheet (FINE), which will contain all contractual aspects of the term deposit.
In summary, we advise you to analyze the entire market and compare when you want to choose a term deposit. Take note of all the factors above and read the FINE to make sure you are choosing a financial product that suits your needs.
