Types of Fixed-Term Deposits: What's the Difference and Which One to Choose?

Ordinary Deposit – is by no means the only product available to depositors. Banks offer various types of fixed-term deposits, providing depositors with more flexibility in managing their money in light of changing economic trends.

As interest rates have significantly risen over the past year, and the ECB has raised the key rate on fixed-term deposits to a record 4%, now may be the best time to explore investment options and consider the various types of fixed-term deposits.

What is a fixed-term deposit?

A fixed-term deposit is a bank deposit that pays a fixed rate of interest for a predetermined period.

Depending on the term and the bank, fixed-term deposits can be more profitable. At the same time, each fixed-term deposit in the EU is insured up to €100,000 per depositor in a bank, so in the event of a bank failure or other circumstances, the funds will be reimbursed.

Read more about what fixed-term deposits are in the article: What is a Term Deposit?

1. Ordinary Deposit

An ordinary deposit is the simplest and most common type of fixed-term deposit. With this type of deposit, the customer entrusts their money for a fixed period at a fixed interest rate. Typically, the term of an ordinary deposit ranges from one month to several years, depending on the customer's preference and the financial institution's offering.
 

The interest rate on an ordinary deposit depends on the term, currency, amount, and market conditions. Generally, the longer the term, the higher the rate. An ordinary deposit does not allow for early withdrawal of funds without losing interest or incurring penalties. It is suitable for customers seeking a stable income from their savings and do not plan to use them until the end of the term.

2. Subordinated Deposit

A subordinated deposit is a type of fixed-term deposit where the customer entrusts their money for an extended period at a high-interest rate. A subordinated deposit differs from an ordinary deposit in that it has a lower priority in the event of the financial institution's bankruptcy. This means that in the event of the financial institution's liquidation, subordinated depositors will be reimbursed their funds only after satisfying the claims of all other creditors, including ordinary depositors. As a result, a subordinated deposit carries more risk than an ordinary one but offers a higher interest rate.
 

A subordinated deposit is not covered by deposit guarantee systems, so the customer bears full responsibility for choosing a reliable financial institution. It is suitable for customers willing to accept higher risk in exchange for greater returns and do not need access to their funds for an extended period.

3. Investment Deposit

An investment deposit is a special type of bank deposit that combines the features of a savings account and an investment portfolio. Essentially, this allows you to earn interest similar to an ordinary deposit while the bank also invests a portion of your capital in various financial instruments such as stocks, bonds, and investment funds. This investment approach enables investors to diversify their portfolios and earn higher returns compared to ordinary deposits.

Learn more about this type of fixed-term deposit in the article: Investment Deposits: Balancing Risk and Reward.

4. Deposit With Additional Conditions

A deposit with additional conditions is one of the types of fixed-term deposits offered by banks in the EU. This deposit differs from an ordinary fixed-term deposit in that depositors can withdraw or add to their funds on specific dates or when a certain account balance is reached. As a result, depositors can combine the benefits of fixed terms with flexibility in managing their money.
 

A deposit with additional conditions can be useful in various situations, such as when a depositor plans a significant purchase, like a home, car, or education, and wants to save the necessary amount by a certain date. In this case, the depositor can open a deposit with additional conditions and add to it as opportunities arise until they reach their goal.
 

A deposit with additional conditions is also suitable for depositors who want to synchronize the term of their deposit with the term of another financial product, such as a loan, insurance, or retirement plan. In this case, depositors can open a deposit with additional conditions and withdraw funds when they need to repay a loan, receive an insurance payout, or retire.

In this article, we have discussed the most popular types of fixed-term deposits. You can find deposits of these types on our website. We hope that this information will help you understand the differences between them.

The choice of deposit depends on how much risk you are willing to tolerate and for what purposes you plan to open a fixed-term deposit.

If you're interested in learning more about fixed-term deposits or other investment opportunities, we invite you to visit our Finding a Fixed Term Deposit page, where you can compare different offers from different banks and choose the one that best suits your needs.

You can also explore our blog where you'll find a wealth of informative articles on fixed-term deposits and financial matters. We're here to help you navigate the world of finance and make the right choices for your financial well-being.