Saving money in a deposit account is an excellent opportunity for both turning dreams into reality as well as providing a safeguard for the more difficult periods in life. What are the questions that a smart future saver should seek answers to before depositing their money?

Why should I save money on a deposit account in the first place?

Saving money is important for everyone for the purpose of protecting their future. This is certainly a vital matter for families with children, young people starting their first jobs, and people who live from pay check to pay check and cannot easily create savings in another way.

Every cent deposited today creates an opportunity for more freedom in a person’s choices in the future. It is sometimes thought that enormous amounts that ordinary people do not have are needed to even begin, but this is definitely not the case. Even a few euros are enough to start. Furthermore, banks have made depositing money very easy. The bank transfer takes place automatically, and several times a month, if required.

What amount is reasonable to begin saving?

It is difficult to determine the amounts to start a savings account because they depend on everyone’s personal ability. There are ten-euro payments, 500-euro payments, and even much bigger amounts. The most important thing is to go ahead and start; therefore every amount matters. However, it would be reasonable to begin with a bigger amount than you initially considered. It could be five to fifty percent of your income, depending on the person. Personally, I support the idea of saving a certain amount in a separate account before opening a long-term deposit. In two or three months, you’ll get the idea of what amount of money you’re willing to deposit every month in order to continue. When starting off, I recommend not to underestimate yourself and to understand that the amount saved is very small when you only save a tiny amount of your monthly income. The math is simple, after all – if you only save one euro every month for the next ten years, it only amounts to 120 euros plus interest accrued. However, if you save 25 euros in the deposit account every month, it already amounts to 3,000 euros plus interest in ten years’ time.

Why not simply save my money in my current account?

Money in your current account is constantly devoured by inflation because no deposit interest is collected. The risk tolerance of a person also plays a role in this case. If the person does not wish to lose a single euro in any given case and they plan to hold the money in the account for a short period of time, the losses are not big even when using the current account, but the situation immediately changes when changing the period or the risk level. It is possible to lose quite a lot of money simply by holding money in the current account.

What should I do before opening a deposit?

Before opening a deposit account, it is a good idea to examine your bank statement and think about what you wish to save money for and how to do it. You can do this by tapping into your own knowledge or by browsing various articles and books. Additionally, you should consider the degree to which you are willing to tolerate fluctuations in the deposited amount. Based on this, you can choose the strategy for depositing your money.

How should I choose between different deposit products?

Different calculators on the websites of banks will help you make the best choice. The website www.minuraha.ee, created specifically by the Financial Supervision Authority in order to aid consumers, is also an excellent source of information.

Which deposit product is the most popular one? Why?

The fixed-term deposit is the best-known and the most common type of deposit. The logic is simple – deposit a certain amount, and straight away you are able to know how much will be accrued by the end of the period, that is, the amount you will earn. It is also a risk-free investment where money is always protected and growing. For example, Luminor is currently offering the best interest rate of all the major banks operating in Estonia for money saved in a fixed-term deposit account.

As Estonia is a relatively young country in the field of investment, the majority of people prefer less profitable products that have a fixed interest rate. Products where money can be immediately withdrawn if required are also preferred.

Is it important to consult with an expert before starting a deposit? Why?

It is a great idea to consult with an expert. First off, consultants that deal with deposit accounts every day are best informed about the market situation. For example, they could lead you to a combination of different products that you might not even consider yourself. Consultants also assess your risk level. In summary, the possibility of finding the best solution is much higher than by working on your own. It must also be considered that as of 2018, interest on deposits is taxed with income tax.

How does opening a deposit account work?

Opening a deposit account is very simple – you only need to log into the internet bank or visit a bank branch. Opening a deposit account takes up to two minutes. In additional to depositing a bigger amount, it is also wise to consider creating a monthly regular transfer. When entering into a deposit agreement with the bank, it is smart to straight away add the respective transfer to the agreement.
This will help you protect your future.

How do I know what deposit period is the best for me?

The most practical and time-efficient way to determine your ideal deposit period is to visit a consultant and together examine the deposit objectives for all your different stages of life. However, there is always the option to draw up your own plan for the deposit period. It would be smart to consider both short-term plans and saving for hard times as well as stating and writing down your dreams and future plans. For example, if you want to buy a home in the next 2-3 years, it would be reasonable to deposit the majority of the money for the short term – up to three years – and share the rest between other goals and saving for pension.
 
Linda Willmann