What is a deposit account

What is a deposit account and how it differs from a regular savings account

A deposit account is a banking service available to individuals and legal entities. Simply put, a client brings assets to a bank to place them in an account, and the institution pays them interest. When we talk about deposit accounts, we usually mean cash deposits. In fact, apart from money, you can also deposit securities and precious metals.

The main reason for opening deposits is to earn income from interest accruals. However, deposit accounts are considered the least profitable investment method, since the average interest rate on them is around 5%, which, taking into account annual inflation, is critically low for making money on invested assets. Therefore, deposits are actually needed to preserve current funds.

Types of deposit accounts

Banks have developed several deposit programs depending on needs. Thus, they are divided into types according to the following characteristics:

1. By term, i.e., fixed-term and demand deposits. The first accounts are opened for a specific period without the possibility of withdrawal. The rule here is: the longer the storage period, the higher the rate. The second type of deposit is demand. They can be withdrawn at any time, and therefore the interest in this case is minimal.
2. By management capabilities. This includes revocable and irrevocable deposits, with or without the option to top up.
3. By asset form. Accordingly, deposits are classified here depending on the assets placed in the account: money, precious metals (via unallocated metal accounts or in the form of metal bars), securities.
4. By beneficiary. You can issue a deposit in your own name or for a third party (usually a minor child).

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Bank deposit insurance system

In 2004, the state ensured that depositors would not lose their assets in the event of bank bankruptcy or license revocation by creating the Deposit Insurance Agency (DIA). Today, the corporation's tasks include not only the financial protection of deposit holders, but also the "rehabilitation" of credit institutions, management of insolvent banks, insurance companies, and non-state pension funds.

Since 2014, the insurance amount has been 1.4 million RUB. That is, even if a client has 3 million RUB of personal money stored in a deposit account, the insurance payout from the DIA will not exceed 1.4 million RUB. The depositor will have to recover all remaining funds through a court.

Thus, money in accounts and deposits subject to insurance up to the amount of 1.4 million RUB includes:

• individuals, including those opened in connection with individual entrepreneur activities;
• small businesses included in the register of small and medium-sized enterprises;
• non-profit organizations and socially oriented civic associations (i.e., consumer cooperatives, housing cooperatives, horticultural non-profit partnerships, etc., religious organizations, charitable foundations, etc.).

 

Note.

Since the maximum insurance amount is 1.4 million RUB, it is better to store large amounts in several institutions at once — this way you can protect yourself against losing money.

What additional options can be added to a deposit account

When opening a deposit, a client gets the opportunity to additionally connect options that allow them to manage the product at their discretion. These functions include:

1. Option to top up the account. Periodically depositing funds allows clients to earn a higher return. Therefore, if you are going to top up your account, we advise choosing a deposit with such an option, as this feature is not available on all programs.
2. Option for early withdrawal. The terms of some deposits do not allow clients to withdraw money from the account before maturity. Other terms allow withdrawal down to no lower than the minimum balance. Keep in mind that the less money in the account, the lower the deposit yield will be.
3. Capitalization. The essence of capitalization is that periodically (usually once a month) the bank calculates deposit interest and adds it to the principal amount, thereby allowing the depositor to earn a little more.
4. Preferential terms for early deposit closure. This feature is not available for all programs. More often, the depositor loses accrued interest if they close the deposit earlier than the date specified in the agreement. However, the terms of some programs allow retaining the earned profit. For example, this can be seen with deposits for pensioners.

Taxation of deposit accounts

According to current legislation, any income must be taxed. In theory, profit from funds placed on deposit is no exception. In practice, clients are only required to pay tax on deposits whose interest exceeds the non-taxable interest income. It is calculated as the Central Bank's key rate multiplied by 1 million RUB. And since banks do not offer depositors such a high income on deposits, clients are usually exempt from payments to the Federal Tax Service by default.

How to open a deposit account

Any Russian citizen who has reached the age of 14 can open a deposit account. They can do this either in online banking or at an office of the institution. In the first case, you will need to choose a program, specify the deposit terms (amount and term), deposit money, and sign an electronic agreement. When applying at a bank branch, you will need to have your passport and assets to transfer them to the account.

Subsequently, you can top up the deposit in any convenient way: via online banking, ATMs, the organization's cash desks, or through a financial asset trading service, when it comes to precious metals and securities.

 

Deposit accounts are a good opportunity to preserve your assets and get a small profit from them. Periodically, banks offer profitable seasonal deals and additional options that allow clients to slightly increase the income from placed funds.