Opening a term deposit account is quite easy. However, it requires you to take two essential steps; choosing the right type of deposit and the right bank. Keep reading to find out more on this.
Term deposits or fixed-rate bonds offer the benefit of fixed returns to an individual throughout the deposit tenure. Moreover, they come in various shapes and size making it easy for an individual to select the one that suits his/her needs. Let’s look at various types of deposits and how to choose a bank for opening an account.
Types of Fixed-Rate Bonds
- Regular Term Deposits: These are regular fixed-rate bonds that offer a fixed interest on the deposits for the entire tenure of the deposit. The tenure could range between 6-months, 1, 2, 3, and 5 years. Withdrawals before maturity can be made but will attract some penalties or loss of interest.
- Super Saver Deposits: These usually offer a higher interest rate, and the tenure is the same as regular deposit accounts. However, withdrawals before tenure can only be made under extreme circumstances such as the death of the account holder or bankruptcy and may imply loss of interest and/or penalty.
- Recurring Deposits: These can be opened for a duration of 1 year to 10 years, and the deposit must be made at predefined intervals throughout the tenure.
- Notice Deposits: This is like a regular savings account but earns a slightly higher interest rate. However, you can only withdraw money from the account after giving a notice of 45-95 days to the bank. Moreover, the interest rate offered here is variable and is subject to change. However, some banks offer the option to close the account without any penalties or charges if they find the new interest rate unfavourable.
Choosing a Bank for Term Deposit in the UK
- Interest Rate: One of the key deciding factors is the interest rate offered. Make sure you opt for a bank that offers a good interest rate on your savings. Some banks also offer a higher interest rate on USD deposits which is great for individuals who wish to park their earnings in dollars.
- Penalties on Early Withdrawal: Next, determine the penalties on premature or early withdrawals. There are two things to watch out for here; loss of interest and penalty on interest. Loss of interest could mean you lose all the interest earned throughout the tenure or last 365 days. This can be quite expensive. The other could be a penalty on the interest earned so far. For instance, if you make a deposit of 1-year and withdraw within 6-months, the bank could levy a penalty on the interest earned over these 6-months.
- FSCS Protection: This is very important. Make sure the bank you select offers you protection under the Financial Services Compensation Scheme (FSCS). Under this, deposits up to £85,000 per individual per bank are secured. Only a UK-regulated bank is covered under this scheme.
- Ease of opening the Account: This is again an important criterion. Some banks allow you to open a deposit account online if you already have an account with them. If you don’t, then you might have to visit the branch to apply and submit your documents.
Before you open your term deposit account, make sure you know all the terms and conditions. Pay special attention to the points mentioned above and start saving.