Term savings are those resources made available to an entity for a time in exchange for obtaining a profit or profit.
Term savings in general terms is a contract between two parties (although there may be several interested parties for one of them) in which for a period of time, which can range from months to years, one of the parties transfers the availability to another with the spirit of obtaining a performance at the end of that time or during the course of it. Term savings are produced through tax or deposit accounts, which is the name taken by the financial installment savings product.
Unlike demand savings, term savings have restrictions on the mobility and availability of the resources assigned to the financial institution once the contract is signed, in such a way that, as agreed, the person (physical or legal) The transferor of the money agrees not to redeem the investment ahead of time, and in the event that this occurs, it would have penalties. On the other hand, the entity that obtains the management of the capital undertakes to pay interest to the assignor for the time in which the money has been loaned.
Term savings characteristics
The characteristics of term savings are as follows:
- They have an expiration date: The deposit or deposit contracts have a conclusion date, from which there is total availability of the money, and it goes on to become demand savings, since there is no delimitation with the money transactions, although there is the possibility of automatic renewal of the contract.
- They have a higher interest than savings on demand and checking account: The higher interest is the price of the loan of money to the entity for a defined time, that is, the same operation that banks carry out with their clients when they grant them, for example, mortgages.
- They are subject to restrictions and penalties in the case of alteration or breakage of the contract: For example, there are deposits in which there is no possibility of redeeming the money before maturity, but there is also the possibility of having the money before the date of maturity in exchange for paying commissions or reducing the interest to be paid.
- Deposit accounts are only to immobilize money and collect interest: It is not allowed to operate with these accounts for payment of bills, payroll collection or transfers between accounts.