Financialtreat – will explain about the Advantages and Disadvantages of Certificates of Deposit! Do you already Know? which you will get in the following article. let’s look at this article carefully!
In simple terms, certificates of deposit are one of the important instruments for investors. In addition to being used as proof of investment, this certificate also has a useful function as a tool for fund development and loan guarantees.
However, before utilizing this one banking product, you need to know the risks and characteristics of this one product. The certificate of deposit itself is a savings in the form of a deposit that has proof of storage in the form of a certificate where the certificate can be transferred.
Advantages and Disadvantages of Certificates of Deposit! Do you already Know?
This deposit product can be classified as a debt instrument issued by a financial institution to investors. The certificate obtained does not include the name of the owner or a specific legal entity.
This is known as top point. With this, this type of deposit can be easily disbursed or taken by anyone who holds the certificate of deposit.
Just like deposits in general, certificates of deposit are products offered by banks and credit unions that offer premiums in the form of interest rates in exchange for customers who agree to keep their money which can only be taken for a pre-agreed period of time.
Deposits that use certificates as proof of this can also be said to be a safe investment and are more conservative when compared to stocks and bonds. This banking product does offer a lower development opportunity, but it has a return rate that is certainly not volatile.
Advantages of Certificates of Deposit
In addition to being profitable for its users, this type of deposit has the following advantages:
Easy to transfer
One of the advantages of this deposit product is the ease of changing hands. This is because the certificate does not include the owner’s name and ownership status of its use. That way this deposit can be easily disbursed by anyone who holds this certificate without the hassle of taking care of the disbursement to the bank.
Easy To Trade
As explained above, without ownership status, this one financial product is very easy to trade freely without the need to take care of and prepare documents to the bank.
Disadvantages of Certificates of Deposit
In addition to the advantages, of course, the certificate of deposit is also not spared from the disadvantages. Without the status of investment ownership, all the process of changing hands or buying and selling this one financial product becomes so easy. This also makes the certificate vulnerable to being lost or even stolen.
Because if it is lost and falls into the hands of irresponsible people, then this one deposit product can be easily disbursed and just lost.
Therefore, you need to be careful in maintaining the certificate of deposit that you have. If you feel that you can’t keep it, you can take advantage of the deposit box service provided by the bank by spending a small amount of money to pay the certificate deposit rental fee.
Characteristics of Certificates of Deposit
Deposits with this certificate are said to be one of the safer investment instruments when compared to other investment instruments such as stocks and bonds. This is because certificates of deposit have several characteristics.
Have a Certain Period of Time
The period stated on this certificate informs that the customer can be allowed to take the deposited funds on the due date as agreed at the beginning. If you do not follow the agreed time, the customer will be subject to a violation penalty in the form of a fine.
For example, customers take a period of time to save money for 6 months, but when entering the 5th month you have already taken the invested funds back. Thus, the customer will be given a penalty and require the customer to pay a fine whose nominal is in accordance with bank policy.
Have Higher Interest Rates
What makes this certificate attractive is the interest rate that will be obtained at the beginning so that the profit to be obtained is clear. In addition, the nominal interest offered is also higher when compared to other deposit products, starting at 2% to reach 7.5%, even though if you look at ordinary deposit products, they only have an interest rate of up to 3% per year.
One of the advantages that a certificate of deposit has is that the nominal rate has been set as well as guaranteed by the bank. Thus, the risks of these deposits are fairly low and there is no risk of deposits that will decrease or fluctuate.
Moreover, customers will also receive protection from the Deposit Insurance Corporation (LPS), with a maximum nominal of IDR 2 billion when the customer’s investment interest rate has reached 7.5%.
Can Be Used as Loan Collateral
This certificate of deposit can even be traded easily or used as debt collateral. This is because the certificate is not listed and the name of the holder or owner is written so that the ownership can be easily transferred.
The Right Time to Open a Certificate of Deposit
Although classified as an investment instrument with low risk and safe, the stipulated period of time will make it a little difficult for customers to disburse investment funds when the situation is urgent.
Therefore, make sure to use the investment product offered by this one banking at the right moment. Make sure the money you use to deposit it is special money that is prepared to support all activities in the future or in the future, for example for a vacation abroad in about 5 years.
When you want to save and invest the rest of your salary through investment instruments that are safe and minimally risky. Then this type of investment can be the right choice. Make sure you have an emergency fund and other savings that can be disbursed and used at any time. You can commit not to disburse the funds that have been invested before the maturity date.
Difference between Time Deposits and Certificates of Deposit
There are 3 main differences between time deposits and certificates of deposit that prospective customers must know. What are they? Here comes the list.
First, the difference between time deposits and certificates of deposit lies in the status of ownership. On time deposits, proof of ownership in the form of. A slip containing the amount of savings and maturity time is called a deposit certificate.
The deposit certificate will be used in the process of disbursement of funds. Since slips and certificates have similarities. Many people consider that proof of ownership of deposits is also referred to as a certificate of deposit.
Interest Rate Calculation
The calculation of interest rates becomes the difference between time deposits and certificates of deposit. The calculation and payment of interest on time deposits are given. When the maturity time arrives according to the agreement at the beginning.
But you as a customer can determine the amount of interest earned will be disbursed. When the principal of the deposit is given or the interest disbursement only. Meanwhile, the principal deposit of funds will be extended automatically.
In addition, the extension of the deposit period can also be done at. The same time as extending the interest collection that has been earned. Of course, this is a greater advantage for customers.
In contrast to the certificate of deposit. The calculation and payment of interest is given from the very beginning of the opening of the deposit. So that from the beginning you have known the total amount of money value that will be obtained later.
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Scope of Use
The usability aspect in investment instruments is the difference between time deposits and term certificates. Each financial instrument such as certificates and deposits has a different character, potential profit and risk.
If something unexpected happens to the bank as a place to deposit. Your deposit fee remains safe because the LPS will fully replace it with a maximum fund of IDR 2 billion.
Unfortunately, when Bank Indonesia’s interest rate decreases, deposit interest will certainly decrease. The biggest risk is that deposit interest is eroded by inflation. The difference between time deposits and subsequent certificates of deposit lies in terms of their usefulness.
Where the certificate of deposit in the absence of ownership status makes it easier to transfer. So that the certificate of deposit is suitable as a form of investment, gift, to inheritance. As an investor, this type of deposit is classified as more liquid.
Although it has a disbursement tenor such as time deposits. The timing of sales in the capital market is not bound. That’s the explanation about certificate deposits that you need to know. That way you can have a reference on which investment instrument is suitable for you.
Whatever the type of investment. Make sure to invest your money through a trusted financial institution. In addition, if you choose to use a certificate of deposit. Don’t forget to store the certificate securely.