How to choose a bank for a deposit: from A to Z
There comes a time in everyone’s life when we start to think about our financial well-being. Let’s start improving our financial literacy. One of the key points of financial well-being is the formation of an airbag. These funds should cover expenses for 3-6 months in case of a difficult life situation. But if you keep them at home, then they depreciate, and you can spend them. So where do you store money to protect it from inflation and at the same time be able to quickly use it if necessary? Bank deposits come to the rescue in this matter. But there are so many banks. So how do you choose the right bank for a deposit?
Let’s dwell on the process of choosing a bank for a deposit in more detail.
In our lives, we constantly encounter banks that help us solve financial issues. This includes paying utility bills, taxes, or buying an apartment. Of course, they don’t work for free. And before answering the question: how to choose a bank for a deposit, let’s decide – why do we need these deposits?
Saving cannot be controlled
The first reason for opening a deposit, for most people, is to save money. However, it is worth remembering that in order to accumulate a sufficient amount of money, you will need to show willpower in order to avoid spontaneous spending of already accumulated funds.
And also keep in mind that this is a rather boring and lengthy process. Especially if you use bank deposits. After all, the yield on bank deposits leaves much to be desired and it will not work to increase money.
However, this process can be made more enjoyable by setting a savings goal that motivates us. Some want to save up for an apartment. Others are on holiday in the Maldives. And someone seeks to create capital for a comfortable life in retirement.
When choosing a goal, we recommend using the SMART methodology. The name of the method is derived from the first letters of the English words that describe the goal. So the goal should be:
- – M (measurable) – measurable;
- – A (achievable) – achievable;
- – R (relevant) – relevant;
- – T (time-bound) – limited in time.
The second reason would be Daily Expenses. This is where bank deposits help us save the money we need for daily expenses. To help understand how much money we need for this task, maintaining a family or personal budget and developing our financial literacy can.
However, it must be remembered that from 2021, income from bank deposits in excess of a certain bar is taxed at a rate of 13%. Therefore, it is not profitable to keep an amount of more than 1’000’000.00 🪙 on bank deposits. After all, the yield on deposits exceeding this amount becomes even less.
Reverse side of the deposit
The smallest percentage of people with a bank account is in the over 65 group, but it is in this circle that the largest increase in bank account ownership can be observed. The conclusion is clear: many users increasingly want to create accounts and use them regularly.
Fortunately, it is not difficult to create a bank account, whether we decide to open one online or go to the bank in person. The important thing in this process is to learn how to do it beforehand.
Many and many users are faced with this dilemma: it would seem that opening and managing a bank account is free of charge, without additional fees, but in practice these operations often come with hidden costs. Therefore, we need to know how and where to set up your account in order to avoid unnecessary fees.
Types of bank accounts
The type of bank account we choose has a big impact on any fees we may face in the future. The most popular versions of bank accounts and deposits include:
- deposits or contributions. This is a type of savings account that is opened for a certain period. These accounts allow you to save money. Income on such accounts is higher than on others. Deposits are divided into three categories depending on the term of the deposit, the possibility of replenishment and the type of currency.
- Personal accounts, or savings and checking accounts. They are primarily used to make current payments, store funds from salaries or pensions, and make purchases.
- Youth accounts are an offer addressed to people of a certain age group (usually 18-25 years old). This type of account is free in most cases and does not require minimum monthly receipts.
- Savings accounts. They are usually combined with personal accounts. The use of additional financial products may have the effect of reducing the fees associated with maintaining such an account and increasing profitability. According to these accounts, income and expenditure transactions are allowed.
- Foreign currency accounts – designed for people who receive remuneration in foreign currency or often leave the country and make purchases abroad. Having a foreign currency account allows you to avoid additional costs associated with commissions for payments made abroad.
Fortunately, there is no contraindication to having multiple bank accounts. This solution can even be useful, because it will help us not only to avoid possible fees, but also to earn on the accrued interest.
Term deposit VS demand deposit
It is important to know the difference between term and demand deposits. This will significantly affect the yield received from the placement of funds on the deposit. Depending on the period of placement of funds in a bank account, deposits are divided into urgent and "on demand".
Demand deposits are opened for an indefinite period. Funds from it can be received at any time. The interest rate on these deposits is significantly lower than on deposits or term deposits.
Term deposits are opened for a specific period, ranging from a month to several years. The interest rate on the deposit also depends on the period of placement of money. Interest is usually paid at the end of the term of the deposit or on a monthly basis.
In case of withdrawal of funds before the expiration of the term of the term deposit, only the initial amount of the deposit will be returned to the client of the bank in full. And the interest will be recalculated, in most cases, based on the interest rate on demand deposits. And for many banks, this rate is 0.1%.
It is necessary to remember this feature when deciding on the premature closure of term deposits.
Bank – back and forth
Choosing the right bank to open a deposit is an important point, on which a lot will depend. At the beginning of 2021, there were recently 365 banks with a valid license. That is, there is plenty to choose from, the main thing is not to get confused in such an amount and make the best choice.
To do this, it is necessary to carefully monitor the offers of banks located in our area of residence. It is not advisable to communicate via the Internet, and even more so by telephone, with institutions located in other regions. After all, in the event of unforeseen circumstances, for example, revocation of a license from an organization, you may have to go to an office that will be located a thousand kilometers from home to solve the problem.
When choosing a local bank, it is better to focus on financial companies with a long history of work. It is good if the bank has a network of branches in the region. It is not worth trusting an organization with a single office in the regional center and a little-known name.
“In case of bankruptcy of a financial organization, the agreement will be terminated and the depositor will receive the deposit and interest on it only for the period of time before the bank shuts down and in the amount of the insured amount. Within the framework of the Compulsory Deposit Insurance System (CIS), deposits up to 1,400,000 🪙 are insured, there is a risk of losing the amount above this threshold."
It is advisable to ask on the Internet about the capital and branching of the bank structure in the country. The more solid the organization and the higher the number of contributors, the more reliable future cooperation.
Before transferring your funds to any bank, it is also necessary to check whether a particular bank is included in the Compulsory Deposit Insurance System. This can be done, for example, on the website of the Deposit Insurance Agency.
Only business, nothing personal
After we have selected all banking organizations in which deposits are insured, we can proceed to the selection of deposits with maximum interest rates in each bank. The more we analyze offers on deposits and deposits in various banks, the higher will be our chance to find a profitable option.
Changing the deposit rate
It is reasonable to open an account in 🪙, currency offers reduce profitability during conversion.
An important factor is the frequency of interest payments. Most often, they are charged at the end of the term. However, there are products with several payments over the period of the contract. So, a deposit for a year can have interest accruals once a quarter or monthly increases.
At the same time, part of the deposits has a capitalization function. The service consists in the fact that the accrued interest is added to the deposit balance and in the next billing period the income will come from the already increased amount. Thus, the final profit increases. True, the capitalization benefit is minimal and amounts to tenths of a percent. Plus, capitalization is the higher, the more often interest is calculated and the longer the duration of the investment. Some banks put down the amount of income with the capitalization already calculated, it is worth asking a bank employee about this.
It is also worth paying attention to the commissions and fees that may be. You need to find out not only the amount of these fees, but also for what specific services they are charged. This will help you avoid unpleasant surprises in the future. Some banks may charge a commission for opening a deposit, or replenishing a deposit, or withdrawing money from a deposit, and so on.
And do not forget to clarify about penalties for early closing of the deposit.
The best decision when choosing a bank for a deposit may be Reliability of the bank and a relatively high percentage. However, it is worth remembering that, in some cases, bank problems may be hidden behind high deposit rates. And he tries to solve them at our expense.
Additional assistance in making a decision on the choice of a bank can be provided by the ratings and financial statements of banks. It is worth considering how the place of the bank in the rating, as well as the conditions for the deposit.
Looking for ranking
On the territory of our country there are a large number of banks that provide and offer us financial services. And choosing a suitable organization among them may not be easy and time consuming.
Ratings are designed to help facilitate this process. These ratings are compiled by specialized organizations – the current rating agencies. The most famous among them are AK&M, National Rating Agency (NRA), Rus-Rating, Expert RA and others. Fortunately, Internet resources allow you to find and study all the variety of ratings. Credit rating agency "Expert RA" is considered one of the best.
Banking organizations are also rated by international rating agencies such as Fitch, Moody’s and S&P. True, they work only with the largest banks in our country, all other banks remain without their attention.
Additional assistance in making a decision on choosing a bank for a deposit can be provided by the credit reporting of a particular bank. Fortunately, these reports are publicly available and have been posted on the Bank’s website recently.
Of course, these reports are easy to read and understand by a specialist. Ordinary investors will find it difficult to understand the financial language of reports. Various independent financial portals can help solve this problem, for example, BANKI.RU https://www.banki.ru or SRAVNI.RU https://www.sravni.ru/. Information on these resources is presented in a more understandable way for a wider audience.
The obvious advantage of such resources is their additional services, such as the selection of deposits, mortgages, loans and much more.
Undoubtedly, the reliability of the bank is determined by the results of its activities, or rather by financial performance. You should compare financial indicators, both for the past year and for the past month, with current indicators. The main criterion for the stability and reliability of a financial organization is the increase in the bank’s assets at the current moment compared to past periods, and better compared to several previous periods.
It is also worth paying attention to the size of the authorized capital of the bank, that is, its own funds. This is another indicator of the reliability of a financial institution.
According to a study by the Forbes portal for 2020, the list of reliable many banks includes such financial organizations as Alfa-Bank, Intesa Bank, Bank of China, VTB, Gazprombank, Ing Bank, Credit Agricole, Nordea, Raiffeisenbank, Rosbank, Rosselkhozbank, Rusfinancebank, Sberbank, Citibank, Sovcombank, Sab Bank, HSBC Bank, Unicreditbank and many others.
The study and the full list of banks can be found at the link.
It will also be useful to compare agency ratings with real reviews of current clients of selected banks.
The reverse side of bank deposits
First of all, the offer of the bank helps to determine where to open a bank account. It may happen that some time ago we found the best offer for ourselves, but before applying, a new share appeared on the financial market. Therefore, before making a final decision, it is worth checking the ratings / conditions of deposits and comparing them with each other on a regular basis.
Before submitting an application, we check the following factors:
- account maintenance fee, and whether it is possible to use the conditions for exemption from this fee;
- whether there is a need to maintain a certain balance on the account;
- how many franchise branches the bank has;
- what is the minimum time we need to keep our account;
- how much it costs to withdraw funds from an ATM and how large the network of free ATMs is.
Getting answers to the above questions will greatly facilitate our selection of the best offer. Before making a final decision, do not forget to study the opinions of people about this bank.
It is also worth remembering that the use of additional banking financial products has a big impact on the final amount of commissions. So if you want to create several accounts, you need to decide whether to use the offer of one bank.
And do not forget to carefully read the deposit agreement!
Additional products to the investment
Significantly spread deposits with applications included in the terms of the contract. These may include the following products:
- Debit card with free service
- Investment package for brokerage
- Depositor’s health insurance
The last two options have a significant impact on profitability, due to deductions to partner companies. Investment sites are not subject to the law on deposit insurance. Given the volatility of trading in the stock market, the profit from them is very doubtful.
A debit card is perhaps the only useful service, especially if you really need it. There may be pitfalls here. This is the charge for servicing the card when using it a year after opening, or at the end of the investment period. The question should be clarified with a bank employee before opening a deposit.
Most large banks, in order to develop virtual settlements, offer more favorable rates for owners of their own cards and users of applications for online transactions. You can get acquainted with such products on the official websites of institutions or on reliable information portals dedicated to banking.
Step-by-step instructions for opening a bank account
We choose the best offer according to our needs.
Let’s compare several offers and see which bank offers the lowest account maintenance fees. To do this, we can use a personal bank account comparison counter, where after determining the amount of monthly receipts, we will receive a list of the most popular offers.
- Apply for a bank account.
This step completes the formalities associated with setting up a bank account. Whether we decide to apply online or in person at the bank, in case of any problems, a consultant working at the bank will always be happy to answer our questions and help complete the application.
- Fill out the contract with our personal data required to open a bank account.
Filling out the application will take us no more than five minutes. We will be asked to provide some information such as: name, country of birth, identity document series and number, and residential address. The Bank may also require us to provide contact information – mobile phone number and email address. We can also choose the type of debit card (VISA, Mastercard, MIR, etc.) for our account.
- Select a verification method.
If we apply online, the bank must somehow verify our identity. In most cases, we have one of the following options to choose from:
– signing a contract with a courier that confirms our identity,
– signing an agreement at the selected branch of the bank,
— making a confirming transfer from an account in another bank,
— timely verification of a video call with a bank consultant.
Pitfalls and other nuances of deposits
All deposits have special conditions for premature closing at the initiative of the client. Most often, when withdrawing funds ahead of time, the depositor will receive practically no profit: instead of the agreed amount, income will be accrued at a demand rate that does not exceed 0.1 percent.
nuance measurement accuracy
There are more loyal offers: the accrual of any part of the income, depending on the length of time elapsed from the date of opening. For example, the profit for a deposit for a year can be, with early closure in six months, 50% of the rate under the contract, and after 9 months, 75% of the initial conditions. This is a useful service in situations where money is urgently needed.
Additional conditions for servicing investments
There are deposits with the possibility of replenishment or without it. Also, there are financial products with the permission to withdraw part of the funds in the amount of accrued interest or up to a non-reducible balance.
The highest income can be obtained from the option without income and expenditure transactions. If the minimum amount required to open is small, for example, 10 thousand 🪙, it is much more profitable to open an account without replenishment with a high profit. When we again accumulate a certain amount, it is convenient to issue another identical deposit.
Today there are tempting offers of deposits with an increased percentage up to a certain level. However, you should carefully read the details of the contract. Usually, such products have several periods of income accrual and the percentage is different for each period of time.
Thus, a deposit with a yield of up to 7% for a year can have four settlement periods, once a quarter. Moreover, in the first period of time, profit will be accrued at the rate of 3% per year; in the second 3.5%; in the third 4%; and in the fourth quarter 7% of revenue.
How to understand how much we will get in the end? To do this, you need to determine the arithmetic mean. You should sum the rates for all periods and divide by the number of time periods. In this case: 3 + 3.5 + 4 + 7 gives 17.5; we divide by 4, we get the actual profit of 4.375% per year.
Deposit Income Tax
Tracking the value of the key rate of the Central Bank will characterize the approximate level of profitability in the whole country, which should be slightly less or higher than the Bank’s bar recently. It will also help to understand approximately how much tax will have to be paid. Indeed, from 2021, income tax is levied on income from deposits. Interest income is not subject to tax, which is equal to income from a deposit of 1’000’000.00 🪙 at an interest rate equal to the Bank’s key rate recently.
For example, let’s say that at the beginning of the year we opened a deposit for 1’000’000.00 🪙 with an interest rate of 5% and a term of eleven months. The income on the deposit is paid at the end of the deposit term. Thus, the income on the deposit will be 45’800.00 🪙 (the amount of income was rounded down for ease of calculation). Suppose the key rate of the Central Bank on January 1 was 4.5%. Then the tax-free income on the deposit for the year will be 45’000.00 🪙. As a result, we, as taxpayers, will have to pay income tax of 13% from 800 🪙 next year. Or rather 104 rubles.
The fees associated with maintaining a bank account depend mainly on several factors. Choosing the best account, we must first of all be guided by the criterion of the amount of monthly receipts. Banks usually specify a minimum monthly inflow of funds into the account, due to which they do not charge a commission for maintaining the account.
Another factor is the number of transactions made using the debit card. In the offer of banks, you can often find a note that the fee for using the card on the account is 0 🪙. However, as a rule, this is due to certain requirements that must be met.
The absence of withdrawal fees often depends on the type of our debit card or the location where we will be withdrawing funds. When using ATMs belonging to this bank, we are unlikely to have to worry about commissions. However, when withdrawing funds from other ATMs, the bank may withdraw small amounts of money from our account, regardless of the withdrawal amount.
In most cases, if we want to avoid additional costs, we must carefully comply with the terms contained in the contract and choose the offer that best suits our needs.
It can be stated that for a meaningful selection of a profitable deposit, it is necessary to first devote time to studying the market and conditions for deposits, both on the Internet and when visiting bank offices in person. In the bank you like, get acquainted with the full list of products. And, finally, after weighing all the pros and cons, as well as the financial situation, choose an acceptable option.
We hope that the information presented was useful for you, and you will apply the knowledge gained in life. And the income on your deposits will be stable and high. Now you know how to choose the right bank for a deposit.