A savings deposit certificate is a term financial product in which the financial institution agrees to offer a monetary consideration in exchange for the retention of savings.
In reality, what the bank or financial institution does is issue a certificate. With this document, you commit, in exchange for keeping the money, to pay a series of interests and return the capital within the agreed time.
Characteristics of a savings deposit certificate
Let’s look at some of its main features.
- A savings certificate of deposit differs from a mutual fund in that the former has a single issuer and the latter diversifies investments.
- They’re safe. They are very safe investments, similar to a time deposit.
- Low commissions. Normally, they carry very few commissions and this makes them a very interesting option.
- Cost effectiveness. The interests they offer are above similar products such as term deposits.
- Flexibility. Frequently, the conditions are agreed between the parties and offer certain flexibility to the clients.
- Its main drawbacks are due to the penalty in case of withdrawing the money before time. Therefore, this is, to a certain extent, restricted.
Recommendations in a savings deposit certificate
When we decide to invest in this product we must take into account some important details. Let’s see the most relevant.
- In the first place, as in any other economic decision, it is necessary to take good advice. In this way, you have to investigate, ask and see various alternatives.
- A second step is to find out if we can dispense with those savings during the term of the contract. This is important in any investment we make. The rush to withdraw money in the future almost always leads to losses or less profit.
- Finally, we can include that it is not convenient to save in one direction. Depending on the capacity of each one, the secret is to diversify. Stocks, certificates, funds, etc.
Types of savings deposit certificate
Let’s look at the main types of savings deposit certificate.
- We have the certificates with interest rates increased at time intervals.
- On the other hand, certificates with promotions or gifts.
- Certificates referenced to stock exchanges or currencies such as the dollar.
- Or the redeemable certificates. They offer higher interests and longer terms.
example of an investment
Finally, let’s see an example. Let’s imagine that the investment is $100,000 at a rate of 5% and one year. As we can see, in this case we would have interest of $5,000 at the end of the period. These interests can be charged annually, quarterly or monthly.
Of course, we must keep the savings deposit certificate until maturity. This is so because there is usually an early cancellation fee. Nor should we forget that there are certain tax obligations that must be met when we withdraw it.