What are money savings certificates?

What are money savings certificates?

What are money savings certificates?

Savings certificates

Savings Certificates are defined as a form of bank deposit accounts, but they are governed by a period of time during which the owner of the money is obligated not to withdraw or deposit additional amounts to the account, in exchange for pre-agreed benefits that he takes either at the end of the time period specified for the certificate or periodically, either quarterly. Or semi-annual or annually during the period of the certificate, and it is also called Certificate of Deposit, and savings certificates differ from other deposit accounts in that they have a higher interest rate, because the owner of the money undertakes not to withdraw the money before the specified date, and in case he wants to break a deposit The savings certificate must pass a certain time specified by the bank, often at least 6 months.

Features of savings certificates

The savings methods provided by financial institutions vary, and each method has its own characteristics. The following are the most important advantages of savings certificates:

  • Safety: Savings certificates are among the safest ways to save, as the saver gets his money even if the bank closes or declares bankruptcy, as government agencies provide this type of savings.
  • Higher interest rates: Savings certificates are of higher value at the bank than any other savings accounts, because the saver undertakes not to withdraw money, so he offers higher interest rates, and also guarantees the stability of the interest rate over the duration of the savings certificate.
  • Profitability guarantee: The bank or financial institution undertakes to pay profits to the saver according to the agreement, and this guarantees profitability to the saver, unlike other investment methods that include the possibility of loss, such as stock trading.
  • Flexibility: the saver can invest in several savings certificates, each with a different period of time than the other, and in this case, he can benefit from higher interest rates; It can also obtain cash from the capital over different periods of time.

Disadvantages of savings certificates

Each method of savings has negative aspects, and therefore we will mention the negatives of savings certificates:

  • Lack of cash liquidity: people usually save money in excess of their need for a period of time in savings certificates, and if they need money at a later time, the use of their money is restricted by the contract concluded with the financial institution not to withdraw money, and in the event that they withdraw money, this results in violations amounting to the loss of the right with profits.
  • Inflation risk: In the event of investing in savings certificates for a long period of time during a period of rising inflation, the money loses its value, as it is known that inflation causes the currency to lose its purchasing power.
  • Relatively low returns: Despite the high percentage of profits on savings certificates, the total returns at the end of the time period are low when compared to other areas of investment such as trading, and this explains that the low percentage of risk in investment reduces returns and vice versa.
  • Taxes: The tax order depends on the laws governing the country in which the saver is located, but usually taxes are imposed on the profits generated from savings certificates, which in turn can reduce profits significantly.

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