As fixed deposit interest rates have risen significantly in recent months, this form of investment is more worthwhile than it has been for a long time. Nevertheless, there are a few mistakes to avoid when opening a time deposit account. So you have enough nerves to enjoy TonyBet.
Fixed-term deposits combine very high security with medium returns. The big disadvantage is that you do not have your money available for a certain period of time. Opening a time deposit account is therefore only worthwhile if it is well thought out. As long as you avoid the following fixed-term deposit mistakes, however, there is little to worry about.
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Mistake #1: Opening a time deposit even though you still have debts
Even if the current high fixed deposit interest rates are tempting: The interest you have to pay on loans is usually higher. So if you have the choice of investing money or using it to pay off your debts, you should opt for the latter.
Mistake #2: Investing money you need in the short term
Since with a time deposit you lend your money to the bank for a prearranged period of time (usually at least 6 to 12 months), you should be very sure that you will not need it within this period. So, if you are planning to make a major purchase, you should only invest the money that you do not need for the purchase.
If you have money left over that you won’t need in the near future, a time deposit is still not always the first choice. You should keep a certain reserve of about three net monthly salaries (six net monthly salaries are better for self-employed people) in a call money account. Although call money does not yield as much interest, it has the advantage that you can access it at any time if unexpectedly high expenses arise. Only when the nest egg is secured, a time deposit account makes sense.
Mistake #3: Choose too long a term
If you’ve paid off all your debts, don’t have any big purchases coming up and have saved more than three months’ salary, a fixed-term deposit account may be worthwhile. But even then, you should be careful with long terms. There are two main reasons for this:
In recent months, interest rates for fixed-term deposits have risen sharply across the industry. Anyone who now takes out a time deposit account with a term of several years runs the risk of not being able to benefit from further interest rate increases. A long term is only recommended if it is already foreseeable that interest rates will soon fall again. At present, however, there is no clear sign of this. In case of doubt, short maturities of 6 months to 2 years are more advisable in order to retain a certain flexibility and to be able to react to the market.
With very long maturities of 10 to 15 years or more, broadly diversified funds generally yield a higher return than fixed-term deposits. Although there is always a certain risk involved, this is minimized by the long maturity. This is because with broadly diversified funds you are betting on the entire global economy, which has so far come out of every crisis stronger than before.
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Mistake #4: Forgetting an exemption order
Interest gains from fixed-term deposits must be taxed. The final withholding tax is 25 percent. In addition, there is a soli of 1.375 percent (5.5 percent of the final withholding tax) and, if applicable, church tax. In most cases, the taxes are collected directly by the bank. In itself, this is a convenient service. However, each taxpayer has a savings allowance of 1,000 euros. Therefore, it can be a mistake if the bank automatically collects the taxes.
With an exemption order you can prevent this. Most banks offer a ready-made form for this on their website or in online banking. Once the order has been set up, the bank will transfer the full gross amount to you in the future. The only important thing is that you pay the correct taxes on the income.
Mistake #5: Forgetting to cancel
A particularly annoying fixed-term deposit mistake: At many banks, the fixed-term deposit is automatically extended after the end of the term. In this case, the original term and the interest rate applicable at the time of the extension apply. This is particularly problematic if you need your money urgently or if it is reinvested at an undesirably low interest rate.
For this reason, you should either immediately cancel any fixed-term deposit contracts you have concluded (so that the cancellation takes effect after the end of the term) or at least mark the cancellation period in your calendar so that you can get out in good time in any case.
Mistake #6: “Investing” money with dubious banks or scammers
The most important argument for a time deposit account is the high security. However, this is only guaranteed if your money is deposited with a reputable and solvent bank. In plain language, this means that the bank is subject to the statutory deposit guarantee of 100,000 euros and has its headquarters in an economically strong country of the European Union, such as Germany, France or the Netherlands.
Even worse than banks that do not meet these requirements are fraudsters who lure customers with high fixed-term deposit offers and then never return the money transferred. As the consumer advice center warns, these are not so easy to distinguish from reputable providers at first glance, for example because their offers are high, but not utopian. In addition, fraudsters would partly buy positive comments on rating websites and set up their own web portals to give a genuine impression.
