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A deposit account is a type of investment, involving the transfer of funds of the credit institution (bank) for a certain period of time and income generation in the form of interest on  deposit.

In fact, in this case the bank acts as an investment fund or account – reinvesting clients’ investment in their own transactions on the financial markets and lending to other customers in the form of loans, earning a profit on it, and then paying a small portion of the revenue to  the initial investors.

There are demand deposits with indefinite withdrawal of the invested money and time deposits with a specified date of maturity. As a rule, the interest rates on demand deposits are negligible, and in general banking practice there is one principle: the longer the term of the deposit, the higher the  interest rate.

At the same time, depending on the conditions offered by various banks and laid down in the contract:

  • interests may be charged at the end of the term or on a regular basis, such as monthly;
  • deposits can be replenished either remain the same throughout the period of validity;
  • early withdrawals can be made without the investment income or interest payments for the period of the deposit real action.


Deposit accounts are a good option for:

  • conservatives who do not know and do not want to get acquainted with the modern investment instruments
  • investors who need to regularly receive the same percentage of profit at the cost of a significant reduction in the overall profitability of their investments
  • people who only want to protect their savings from robbers not expecting to receive income from the investment in principle.


Advantages of deposit accounts

  1. The deposit accounts are not subject to the majority of the investment risks, with the exception of fraud, country risk – i.e. change of the state policy in relation to investment and banking – and force majeure.
  1. The Bank shall pay the strictly specified percentage of profits in favor of the depositor, regardless of the success and effectiveness of its own activities on the management of invested funds.
  1. The level of investment income on deposits is known in advance that allows the investors to clearly plan their income and expenses.

Disadvantages of deposit accounts

  1. The real income of deposit accounts is received by the bank, not the investor.
  2. The average yield of deposit accounts is less than or equal to the rate of inflation, which eliminates the profitability of this type of investment.
  3. The investors cannot manage their investments.
  4. The terms of this investment is almost not adapted to the current market and economic environment, which in most cases means the loss of investor’s profits.

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