Fixed term is a type of investment that is concluded over a fixed term, unlike overnight money, and at a fixed interest rate. The interest on fixed deposits will be credited at the end of the investment period. At maturity, the investment can also be invested again as a time deposit or continued as a sight deposit. An option for early retirement is usually not possible. The terms vary between one month and several years. A minimum investment, the amount of which varies from bank to bank, is necessary.
Where can you invest your capital as a time deposit?
Most branch, online banks and savings banks offer fixed deposits. Before deciding on a bank, you should make a comparison to determine the best deal. This procedure is particularly important for time deposits, since the capital remains until the end of the term at the provider of choice. A change to another provider is only possible in rare cases and associated with interest rate losses.
When choosing the provider you should also note the conditions in terms of interest credit. Investors must ensure that the interest is credited annually, ie at the end of each year. For contracts with a lifetime of many years, it can otherwise lead to tax losses. The calculation of the tax burden is subject to the date on which the interest accrued.
How to open a time deposit account?
In advance, the investor must identify himself to the respective bank. Because all savings banks and banks are required by law to verify the identity of the applicant. The identity card serves as a legitimization document. In exceptional cases, the identity card can be replaced by a passport plus a confirmation of registration.
If an investor wishes to open a time deposit account with a pure online bank, the Postident procedure will be applied. For this purpose, the contract documents and the postident coupon of the respective bank must be downloaded and printed out. The applicant must complete these documents and then go to a branch of the Post Office. He must also present his identity card there. An employee of Swiss Post checks the identity of the customer based on the identification papers they have brought. Then the post office employee scans the coupon and transfers the basic data into a form, the customer must confirm this paper via signature.
The post now sends the confirmation of the identity to the provider. This procedure is always free for the customer. However, it is already working on further solutions for the identification and some credit institutions already offer their customers a videoident process. This saves the way to the post office, it only needs a computer with a webcam.
In addition to the identification and legitimacy of the applicant to an account opening and the contractual agreement on the elements of opening a deposit account. The account contract includes all contractual components. This includes the information on the investment period and the specified interest rate. All other special conditions are recorded in writing.
Bank customers should also pay particular attention to the fact that the agreed interest rate is a fixed rate. If all contractual conditions have been regulated, the time deposit account contract will be created electronically within a few minutes. With the signature of the bank customer, the contract is considered completed and the time deposit account is opened. A signed copy of the contract will be sent to both contracting parties, ie the account holder and the bank.
Now the account holder must deposit the contractually agreed investment amount on the newly opened deposit account. If it is the customer’s house bank, the amount can be transferred either from the savings account or from the current account. If the customer is a new customer with the deposit provider of his choice, then the transfer must be made from a checking account. Because other accounts are not allowed by law for payments between different banks.
It should now be made an exemption order. Because if this is missed, then reduces the effective amount to the detriment of the customer. Credit institutions must tax all proceeds of their customers and pay the share of these taxes to the tax office. Thus, as a customer, the time deposit interest can collect completely tax-free, so the exemption request is absolutely necessary.
The reference account for time deposit
The saver must have a reference account in order to open a time deposit account. From this account, deposits can be made on the deposit account. And at the end of the term, the time deposit plus interest is transferred to the reference account. This means additional security for the customer. Because in this way it is not possible for criminals to divert an order from one foreign time deposit account to another account.
Is the early payment of the fixed term excluded in principle?
At this point, the customer should carefully read the fine print in the documentation before concluding the contract. As a rule, it is handled by the banks in such a way that the investor has no legal entitlement to a payment before the end of the contractually agreed period of time. But due to the strong competition in the credit market, some banks are accommodating and may allow for a premature order. In such cases, however, the investor must expect interest losses, or expect to pay interest rates.
What happens at the end of the contract period?
At maturity, the customer can directly dispose of the invested time deposit plus interest. However, also here the specific contract conditions must be considered. This is especially true for fixed term deposits with a relatively short term. Because many banks have integrated into these contracts an automatic extension. This comes into force if the customer does not cancel before the deadline.
The date of cancellation should be noted down and set to resubmission at the correct date. With an automatic extension one speaks in the financial industry of a prolongation. If the time deposit account created under such a contract clause is not terminated on time, then the customer must accept the extension. This extension is then subject to a changed interest rate. It is always kept at the current interest rate.
Does a maximum investment or minimum investment amount need to be considered?
Yes, that is what all credit institutions insist on. The amount of the minimum investment varies from provider to provider. The lower limit is between a few hundred and several thousand euros.
What advantages does fixed deposit offer?
Time deposit is one of the most popular forms of investment in Germany. Because for the majority of the local savers, the safety of the system is at the top. Only in second place are the considerations about the amount of the return. Bank customers are on the safe side with a fixed-term contract. For the laws of the European Union dictate that up to a maximum sum of EUR 100,000 investment per customer and bank, the capital is 100% hedged by the national income protection systems.
Another advantage of investing in fixed deposits is the high degree of planning security. Because the interest rate is fixed over the entire term of the contract. If interest rates on the capital market fall, then this has no effect on the fixed interest rates. Part of the high level of planning is that the investor knows exactly what interest will be credited to him at the end of the term in euros and cents. And of course, at the end of the term, there is also the legal claim not only on the payment of interest, but also on the complete repayment of the invested amount of money. In addition, the fixed-income investor incurs no fees for account management or administration. These costs are already factored into the distributed interest income by the banks.
It is a secure form of investment. Especially in times when the financial market is often shaken by crises, this security is worth gold. Therefore, this form of investment is particularly suitable for savers who value security. And since the return can be calculated accurately in advance, this investment is also suitable for investors who have high planning certainty first.