The lesson in full
The safest first home for your money is a bank. A savings account pays some interest and lets you withdraw any time.
A time deposit (a CD in the US, a deposito in Indonesia, a plazo fijo in many Spanish-speaking countries) locks money for 1, 3 or 12 months in return for a higher rate. Break it early and you may pay a penalty.
Many countries insure deposits if a bank fails, up to a limit: US$250,000 in the US, €100,000 in the EU, Rp2 billion in Indonesia, ₹5 lakh in India.
The real test: rate after tax versus inflation. A 4% deposit taxed at 20% pays 3.2%; with 3% inflation, your buying power grows only about 0.2%.
- Common mistake
Mistake: chasing the highest rate at an unknown bank or app. Unusually high rates often mean higher risk, and some offers aren't covered by deposit insurance. In Indonesia, for example, LPS only covers deposits paying no more than its guarantee rate.
- Key takeaway
Deposits mean safety and access, not big growth. Stay within the insurance limit and check the real rate after tax and inflation.
Quick check
- US deposit insurance covers up to... US$250,000 per depositor per bankAbove the limit, money in a failed bank may not be fully repaid.
- A time deposit... Locks money for a fixed periodYou accept less access in return for a higher rate.
- To see if savings really grow, compare the rate with... InflationIf inflation is higher than your rate after tax, your money buys less over time.
- An unknown app offers deposits at three times the normal rate. The smart move is... Check it's licensed and insured firstUnusually high rates often mean high risk, or a scam.