Savings, Fixed and Call Deposit Accounts, What Suits You?
There are times when we are looking for avenues to park our money for a short period of time, whereas sometimes we just need a place where the money can earn a return but easily accessible. Short term deposits at your bank and Unit trust funds can present some of these avenues.
Most deposit interest-earning accounts have a minimum operating balance which differs from bank to bank, for instance, Ksh 100,000 being the least amount that can be left in the account when withdrawing, if not so, you have pulled all the funds from the account which equates to closing down the deposit account.
The rates offered on the deposit accounts differ from bank to bank; however, the recent fixing of interest rates by CBK (which has since been suspended) has helped keep the range of interest banks offer close without huge disparities.
Opening a fixed deposit account and a call deposit account requires a simple form filling process accompanied by the identification procedures the bank has to carry out. This involves KYC (Know Your Customer) processes e.g. ID, signature verification, just to prove account ownership.
A call deposit account is designed to accept deposits at any time, with the option of withdrawing your money anytime. The call deposit account earns a rate slightly lower than the fixed deposit account. This is due to the fact that funds can be withdrawn at any time and banks tend to favor lasting deposits.
The advantages of a call deposit are that aside from withdrawing your money any time, you can also make deposits and increase the call deposit holding at any time. The interest is calculated on a daily basis based on the amount present in the account.
A trick to the call deposit is that interest accumulates on the principal account and it is only applied to the principal account on request or at the point of closure.
What this means is that a sharp depositor will regularly give instructions to their bank to apply interest on the principle in order to compound their interest – i.e. earn interest on their interest.
A fixed deposit account, on the other hand, locks your money for a specified amount of time. Interest is applied at the end of the period stated e,g. 3 months, 6 months, or 1 year.
One has no access to the fixed deposit account, – no withdrawal, and no deposit into the account. Seeing that one can be faced with an emergency and want to access their money, banks will allow you to access the money on request.
However, you forfeit any interest earned and you only get back your principal amount.
The advantage of the fixed deposit is that the interest offered is a bit higher than with other accounts.
A savings account is the other interest-earning account the banks offer. Every bank has structured its savings account differently; however, the common denominator is that withdrawals are limited to a number of times. In most banks, this is quarterly.
A savings account opening involves the full requirements of Account Opening form filling, presenting your original ID and KRA Pin Certificate.
Some banks are very strict about accessing the savings account more than the quarterly periods. The accounts are automatically converted into transactional accounts when the customer insists on using them as normal transactional accounts.
The advantage of a savings account is that the interest posted on the account is done either quarterly or half-yearly, depending on the bank. What this means is that interest from the first quarter earns interest in the second quarter – therefore, compounding your money. The savings account does not have a large minimum amount requirement, meaning that you can start with even Kes 10,0000.
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With the bank being the safe place to park your money, if you decide to open an interest-earning deposit account, always consider the interest rate, – is it changing with the market changes, and how comparable is to other banks.
Further, consider what will work for you. Will you need funds constantly, or do you want to lock your money to avoid any use for a certain period of time?
Every bank has different packaging of their products, this means that you need to engage them, ask questions where you do not understand. Many people get mismatched with their current needs because the bank officer selling you the product has their end of year targets in mind.
If not satisfied with the explanations, delay your decision making until you understand which interest-earning plan best suits you.
