Guide for analyzing a Term Deposit
Term deposits are a good solution for those who want to start saving without taking big risks.
In this article, written in partnership with the free financial product comparison platform ComparaJá.pt, we list some characteristics associated with time deposits in addition to profitability, to be taken into account in your analysis in order to choose the most suitable term deposit method according to your investment objectives and time horizon.
You must pay attention to the minimum and maximum amount defined for each deposit and check if the amount you are willing to apply falls within the defined parameters. It should be remembered that the greater the amount deposited in the constitution of this product, the higher the return obtained.
Deposits can have different terms (usually 6, 12, 24 or 36 months) that correspond to the period during which the deposited amount is earning interest. The longer the deposit term, the higher the amount resulting from the calculation of the remuneration interest due. Reflect and choose the deposit whose term is appropriate to your needs.
Suppose, due to an unexpected situation, you need to mobilize your deposit partially or in full in advance. Check if the deposit you want to make allows you to move the funds before their maturity date and, if possible, under what conditions, if there are contractually predefined dates for this purpose and any associated penalties. Early repayment may result in the application of penalties on interest corresponding to the amount called.
Some time deposits allow capital increases during the term of your contract, thus increasing the amount applied. These additional deliveries may be made on time or periodically, by agreement of the parties. If the deposit in question allows the delivery of reinforcements, check with the Bank for their frequency and the minimum and maximum amounts defined.
Some time deposits are not automatically renewable, so if you want to subscribe this product again, you should consult your account manager to find out the contractual conditions in force on the date of the new deposit. Other time deposits are automatically renewable on their maturity date, for the same period and according to the conditions initially contracted, unless the client indicates otherwise.
The remuneration of a time deposit - interest - depends on the interest rate that the credit institution charges on that deposit, the amount invested, the term of the deposit and the tax rate on the interest paid by the institution. The Annual Gross Nominal Rate (TANB) reflects the pre-tax interest rate, while the Annual Net Nominal Rate (TANL) effectively indicates how much you will receive after withholding income tax.
The interest on time deposits is considered capital income and taxed by withholding tax, with a taxable nature under IRS and considered payments on account under IRC. Therefore, interest is subject to the payment of taxes of 28% for private customers resident in mainland Portugal and Madeira, 22.4% for residents in the Azores, 25% for companies based in the mainland or in Madeira and 20% for companies based in the Azores.
The payment of remunerative interest is made by crediting the associated demand deposit account. The credit value date on the current account is the deposit due date. Some time deposits allow interest to be capitalized, either automatically or at the customer's initiative. This means that the interest earned in each period is added to the initial capital, constituting a new capital (higher than the initial one), which will also be remunerated (compound interest).
Another aspect that may vary depending on the term deposit to be contracted is the interest payment date, which can only occur at the end of the term or periodically, if previously defined in an agreement between the parties.
Deposits in foreign currencies
Some deposits may be applied in a currency other than the euro. In these cases, the deposited amounts are only guaranteed in foreign currency, that is, in the event of a devaluation of the foreign currency between the time of constitution and the term deposit maturing, the customer may incur losses when converting the amount applied to the deposit to euros. However, the opposite can also happen, that is, if the foreign currency appreciates against the Euro, the client can obtain a higher remuneration than initially projected.
Time deposits are available to the general public or to a specific target group (such as new customers or new resources). It is common to find exclusive term deposits for a specific type of customer, generally offering better terms.
Deposit Guarantee Fund
The Deposit Guarantee Fund (FGD) guarantees the reimbursement of deposits made with its participating credit institutions in the event that deposits are unavailable at any of these institutions. FGD guarantees the reimbursement of the total global value of the cash balances of each deposit holder, by participating credit institution, up to a limit of € 100,000.00.
Currently, the FGD has a maximum period of 15 working days, counting from the date of unavailability of deposits, to reimburse depositors covered by the guarantee. However, with the intention that the FGD will optimize its repayment methods and make them more expeditious, the maximum terms for deposit refunds by the FGD have been successively shortened.
The information on the guarantee provided by the FGD must be included in the Standardized Information Sheet for your deposit and in the Depositor Information Form delivered when the deposit is contracted. For more information on the Deposit Guarantee Fund, see the website www.fgd.pt.
Where can you find all this information?
In the Standardized Information Sheet (FIN) you can consult all the characteristics of a deposit before making it. Note that access to pre-contractual information is a consumer right. Before contracting, you should carefully read the legal documentation, in order to ensure a properly informed decision on the constitution of a product suitable to your needs.