Angèle Schmitz
LinkedIn
8th November 2022

Term Deposits – a Good Alternative for Savings

Uncertainty, crises, inflation and the fears of a recession continue to dominate the news. How can you invest securely and why have good old-fashioned term deposits made a comeback as a good alternative for savings? Nathalie Klein – Private Banking Advisor at the Esch-sur-Alzette Finance Centre – explains how they work and the perks they offer and reveals tips for investing in the current market.

1. What is a term deposit?

A term deposit is a free account with guaranteed capital in which you lock up a set amount of funds for one to 12 months in return for an attractive yield.

In exchange for agreeing to give up unlimited access to your money, you benefit from a better interest rate.

2. What are the characteristics of the term deposit at Spuerkeess?

  • Term deposits are currently available in 16 currencies;
  • Terms vary from one to 12 months;
  • Minimum investment is EUR 10.000 / deposit.*

* if the amount falls below EUR 10.000 due to a withdrawal (whether early or at maturity), the term deposit agreement will automatically terminate and the balance will be credited to your current account.

What interest rates are we looking at?

The interest rate on a term deposit varies daily, based on the markets, an online simulation is possible in 3 currencies.

Example: A client opens a term deposit account for three months on 7 November 2022. At maturity, he is guaranteed an (annual) interest rate of 1,35% on top of the capital invested.

By contrast, the (annual) interest rate on a savings account at that same date is 0,6%.

What are the benefits of term deposits?

As a Private Banking Advisor, I can confirm that term deposits are safe investments with predictable yields. One benefit is that their interest rates vary everyday, whereas classic savings accounts won’t instantly match each increase in rates on the market.

Term deposits guarantee you:

  • the reimbursement of your capital at maturity;
  • rates and yields that are both known in advance.

 

What are the maturity options for my term deposit?

Spuerkeess offers two options for the maturity of your term deposit:

  • Automatic rollover at the rate applicable at maturity;

  • Automatic closure of your term deposit and a credit of capital and interest to the linked current account.

Is interest added to capital?

When clients open term deposit accounts, they choose between dividends and capitalised interest. *

What if an unforeseen event occurs and I need my money before maturity?

You can access your funds any time you want. The only downside is that withdrawal and early redemption fees apply.

Example: A client invests EUR 50.000 into a three-month term deposit. After five weeks, he has a car accident and needs EUR 30.000 to replace his car.

No problem. He can request early redemption for that amount, but will have to pay the fees. He can leave the remaining EUR 20.000 in the term deposit.

3. Nathalie, why would you recommend term deposits to your clients and are there any alternatives?

During periods of strong market volatility and planned rate hikes by the ECB, I strongly recommend my clients to consider term deposits with a short duration (one to four months) so that they can take advantage of the rise in rates to come.

When the time comes, if interest rates regain their stability and start showing signs of decline, a one-year term deposit can be a good alternative, or even a fixed-rate medium/long-term deposit (minimum investment of EUR 10.000 for durations of 18 months to 10 years).

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