Discover the pros and cons of deposits to help you decide whether this is the right investment option considering security, interest and flexibility.
Deposits are one of the savings instruments that are widely used by people to save money for a certain period of time with a fixed interest rate.
Although deposits offer various advantages such as security and higher interest compared to regular savings, there are some disadvantages that need to be considered before choosing it as an investment option.
This article will discuss in detail the advantages and disadvantages of deposits, so you can make the right decision according to your financial needs.
Advantages of Deposits that Attract Customers
Before deciding whether a deposit is the right choice, let’s first review its advantages that are attractive to many customers.
1. Save Quickly
One of the main advantages of deposits is their ability to help you save with more discipline. Unlike regular savings accounts that allow you to withdraw money at any time, time deposits have a fixed term, usually ranging from one month to several years.
Since your money is locked in for the duration of the period with Mandiri Deposit, you will not be tempted to withdraw it immediately. This is a great solution for those who have difficulty committing to regular savings.
However, if your goal is to have quick access to your funds at any time, then a deposit may not be the most suitable option. Instead, a regular savings account will provide more flexibility in managing your money.
2. Lower Risk
Deposits are savings instruments that have very low risk. Money stored in deposits is guaranteed by the Deposit Insurance Corporation (LPS) up to 2 billion rupiah per customer. Thus, even if the bank where you save your money goes bankrupt, your funds remain safe.
In addition, the value of money in deposits is also not affected by market fluctuations, making it a safe choice for storing money without worrying about losses due to changes in exchange rates or stocks.
However, even though the risk is low, this means that the potential profit obtained from deposits is also smaller compared to other riskier investment instruments such as stocks or mutual funds.
3. Interest is greater than savings
Deposit interest rates are generally higher than regular savings interest rates. Banks will offer a fixed interest rate based on the term you choose, and the amount of this interest is certain at the beginning.
This provides clarity for customers about the amount they will receive after the deposit matures. Although deposit interest rates vary between banks, on average, deposit interest rates are higher than regular savings interest rates, making it a profitable option if you want to grow your funds over time.
However, there is one thing that needs to be considered, namely that the amount of interest charged on deposits is usually lower compared to the potential profits that can be obtained from other investments.
4. Fixed Deposit Interest
Another advantage is that the interest offered by deposits is fixed. This means that you will receive the interest that has been agreed upon at the beginning and will not be affected by market fluctuations or changes in the benchmark interest rate during the term of the deposit.
This provides more security for customers who want a fixed income from their savings. However, the downside of fixed interest is that if market interest rates rise, you won’t be able to enjoy the increase because your deposit interest rate is predetermined.
Disadvantages of Deposits to Consider
Although deposits offer many advantages, there are also quite a few disadvantages that need to be considered. Here are some of the disadvantages of deposits that you should know:
1. Not Flexible in Withdrawing Money
The first drawback of deposits is their limited liquidity. The money you save in a deposit cannot be withdrawn before maturity, except with certain penalties. If you need money in an emergency and do not want to wait until the deposit matures, you may have trouble.
Therefore, deposits are more suitable for storing money that does not need to be accessed in the near future. For those of you who need quick access to funds, regular savings will be much more flexible.
2. Smaller Profits Compared to Other Investments
Although deposits offer higher fixed interest rates than regular savings, the returns from deposits tend to be lower compared to other investments such as stocks or mutual funds.
Deposits offer lower risk, but lower risk also means lower potential returns. If you are looking for a way to get higher returns with a higher level of risk, deposits may not be the best choice.
In addition, the interest earned will also be reduced by taxes and administration fees, which can reduce the amount of profit you earn.
3. Affected by Inflation and Taxes
One of the major drawbacks of deposits is the potential for inflation losses. If the inflation rate is higher than the deposit interest rate, then the real value of the money you save will decrease over time.
For example, if the deposit interest is 5% per year, but inflation reaches 6%, then even though your deposit balance increases, the purchasing power of the money actually decreases.
In addition, deposit interest is also subject to income tax of 20%. This means that even though deposits generate relatively high interest, the tax imposed on the interest will reduce the profit you earn.
4. Not Getting Profit When Bank Interest is High
Although the deposit interest rate is fixed, this can be a disadvantage if the bank interest rate increases significantly. Because the deposit interest rate is already determined in advance, you will not get more benefits when the bank increases the interest rate.
This makes deposits less flexible in offsetting changes in higher market interest rates, which can be a big advantage for other investment instruments.
Deposits are a safe and easy savings option to grow funds over a certain period of time. With higher interest rates compared to regular savings and low risk, BNI Deposit offers various benefits for customers who want security in investing.
However, deposits also have several disadvantages, such as lack of flexibility in withdrawing money and limited profits when compared to other investment instruments.
If you are looking for a safe way to save money and do not need quick access to your funds, a deposit can be a good choice. However, if your goal is to earn higher returns or if you need high liquidity, you may need to consider other investments.
