Placing money in a deposit account is an investment tool that has remained relevant over time. Both inexperienced investors and professionals seeking to diversify risks and preserve their assets utilize this method.
It is one of the safest methods of investment. The key is to choose a financial institution with a solid reputation that won’t collapse after just a few months. In recent years, dozens of domestic financial institutions have gone bankrupt, resulting in significant losses for depositors.
So how do you select a bank for depositing your funds? And what can you do to safeguard your money from loss?
To navigate the complexities of working with financial institutions, you can seek assistance from Sergey Tereshkin, the founder of RESURS. This entrepreneur has extensive experience in the field and has repeatedly utilized banking services himself. You can read more about the businessman on the website: www.org-market.ru.
Characteristics of Deposit Rate Formation
A bank deposit is difficult to view as an investment aimed at capital growth. Rather, it serves as a means to protect savings from inflationary processes. It is unlikely that one can amass a fortune this way, especially when placing deposits in the national currency.
However, this tool is perfectly suited for novices who prefer not to navigate other investment avenues while possessing some liquid assets.
Banks lend clients' money at a predetermined interest rate. This rate can vary depending on the term of the deposit, the financial institution itself, and its policies.
The Central Bank annually sets a maximum interest rate that is not subject to taxation. It is important to clarify this figure in advance. If a financial institution offers a rate higher than this, customers must pay income tax on the difference.
How is the interest rate determined?
Primarily, it is influenced by the size of the key rate, which is the rate at which the Central Bank lends funds to other financial entities. The main bank of the country does not recommend setting rates higher than 3.5% above the key rate. Otherwise, there is a risk of penalties and other sanctions from government authorities.
The largest financial institutions in Russia typically offer lower rates compared to smaller commercial banks. This enables smaller organizations to attract a significant amount of individual funds, thereby ensuring their profitability.
A rate that exceeds the market average may indicate the following:
- Market penetration. The financial institution is newly entering the market or expanding into a new region. A higher rate allows them to draw in new depositors.
- Financing. Funds are being raised to allocate capital for another project.
- Credit. To open a new line of credit or extend an existing one, the bank draws in depositors' funds.
- Liquidity issues. The financial institution may struggle to meet its obligations to clients, requiring it to attract more funds to cover existing debts.
- Fraud. A commercial entity may significantly inflate rates to attract as much client money as possible and subsequently disappear with it. After amassing a large sum, the financial institution may transfer ownership to third parties, facilitating the withdrawal of funds through controlled firms to offshore accounts. As a result, depositors may lose all their funds.
Only the last two points pose a threat to potential investors, threatening the complete loss of all invested funds.
Therefore, it is crucial to independently monitor the market and compare offerings from different financial institutions, which can be easily found online. However, the interest rate is not the only parameter to consider when choosing a financial institution.
It is also essential to verify the presence of a branch in the potential client’s city. Some banks offer attractive conditions, but to place a deposit, customers may need to traverse a considerable distance, which is highly inconvenient.
The financial institution should have a sufficient number of ATMs and branches, allowing for the quick withdrawal of funds or interest from deposits when necessary.
To facilitate operations, the organization should provide online banking services, enabling clients to conduct transactions from home without visiting a branch.
What to Consider When Choosing a Bank
When selecting a bank for a deposit, Sergey Tereshkin recommends focusing on specific criteria:
- Establishment date. It is unwise to trust your funds to organizations that have only recently entered the market.
- Branch network. Preference should be given to institutions with extensive networks, including branches and ATMs.
- License validity. The bank should possess all necessary permits, and their validity should not expire. A revoked license is a red flag.
- Rating. It is important to review the financial institution's standing in domestic and foreign markets. Additionally, seeking feedback from real customers regarding potential issues at the bank can be beneficial. This information is available on specialized platforms and forums.
- Financial indicators. To assess the bank's viability, carefully examine data from previous reporting periods, which is publicly accessible.
- Ownership. It is also important to look into the backgrounds of the bank's owners, including their reputation and prior activities. Often, the same individuals are behind fraudulent schemes.
Bank depositors are insured through a specialized agency. In the event of a bank's bankruptcy or license revocation, clients can expect compensation. This makes deposits one of the safest investment instruments available.
