Fundamentally, the purpose of a deposit is not solely to gain interest but also to securely store money without administrative deductions.
That’s why deposits are an ideal choice if you already have clear financial goals.
For example, if a customer plans to fund their child’s college tuition within the next two years (24 months), depositing money now can ensure that the savings aren’t reduced due to unforeseen expenses. Choosing a 24-month term or less effectively safeguards these funds.
Interest growth from the deposit can be viewed as a bonus.
However, for customers who are investors, making large deposits can lead to significant interest growth. This investment instrument is considered safe, stable, and carries minimal risk. see all about Apa Itu Deposito – Pengertian dan Keuntungan untuk Pemula
Understanding Deposits
Generally, deposits are investment products offered by banks, including both commercial banks and rural banks (Bank Perkreditan Rakyat – BPR).
Unlike regular savings accounts that allow customers to withdraw funds anytime, deposits have fixed maturity dates agreed upon between the customer and the bank, such as 1, 3, 6, 12, or 24 months.
Many confuse deposits with regular savings accounts, but there are fundamental differences, notably in flexibility and interest rates. Deposits typically offer higher interest rates because banks can utilize the locked-in funds for productive activities, like providing loans.
Deposit Definitions
According to Law
According to Indonesian Law No. 10 of 1998 on Banking (an amendment of Law No. 7 of 1992), deposits are defined as savings that can only be withdrawn at a specific time based on agreements between the bank and the depositor.
If funds are withdrawn prematurely, penalties or deductions will apply.
According to Financial Experts
Financial experts have similar definitions:
- Kasmir (2016): Deposits are the third type of savings offered by banks, alongside regular savings and current accounts (giro).
- Dendawijaya (2009): Time deposits are third-party funds placed with banks that can only be withdrawn after a predetermined period.
- Experts like Veithzal Rivai (2007) and Andika (2019) also emphasize deposits as fixed-term savings with specific withdrawal conditions and potential penalties if withdrawn early.
From these definitions, deposits can be summarized as investment instruments with fixed terms, considered safe, stable, and low-risk, appealing to beginner investors and individuals wanting secure savings.
Purpose of Deposits
People often wonder, “What is a deposit? Isn’t regular saving also safe?” Indeed, regular savings are safe, but deposits offer distinct advantages for specific financial goals:
- Budget Discipline: Deposits prevent impulsive spending because funds cannot be withdrawn prematurely without penalty.
- Future Savings: Ideal for defined goals (e.g., college funds in 2 years), deposits ensure savings remain untouched.
- Higher Interest Rates: Deposits usually offer better interest rates than standard savings accounts.
- Market Stability: Deposits are stable and insured by the Indonesian Deposit Insurance Corporation (Lembaga Penjamin Simpanan – LPS), unlike volatile stock investments.
Types of Deposits
Before choosing a deposit, understand the various types:
- Time Deposits: Common type; funds are locked for set periods (1, 3, 6, 12, or 24 months) and can automatically renew or be withdrawn at maturity.
- Certificate of Deposit: Issued as a negotiable certificate, transferable or sellable to third parties; usually higher nominal amounts.
- On-Call Deposits: Short-term deposits (7 days to less than 1 month) suitable for corporations or individuals needing liquidity but higher interest than regular savings.
- Islamic Deposits (Sharia): Based on the Mudharabah profit-sharing principle, with no fixed interest but profit-sharing depending on bank performance.
Understanding deposit types helps match investment preferences and liquidity needs.
Benefits of Deposits
Though the main goal is securing funds, deposits offer attractive benefits for conservative investors and beginners:
- Safety and Stability: Deposits are less affected by market fluctuations and protected by LPS.
- Higher Interest Than Savings: Interest rates typically exceed regular savings accounts, providing decent returns with minimal risk.
- Low Administrative Fees: Deposits generally have negligible administrative costs.
- Flexible Terms: Options for various durations (monthly, quarterly, semi-annually, annually) facilitate financial planning.
- Collateral Use: Deposits can serve as collateral when applying for loans.
- Minimal Risk: Deposits offer consistent returns with very low risk compared to high-risk investments.
How Deposit Interest Works
Deposit interest is a return provided by banks for holding funds over a specified period. Interest rates vary based on bank policies, the central bank’s benchmark rates, and the deposit term.
Example:
- Deposit: Rp10,000,000, 12-month term, 4% annual interest
- Annual interest: Rp10,000,000 x 4% = Rp400,000
- Interest tax (20%): Rp80,000
- Net interest earned: Rp400,000 – Rp80,000 = Rp320,000
This calculation is basic and can differ among banks.
How to Open a Deposit
Opening deposits is straightforward:
- Select a Bank: Choose a bank with competitive interest rates, good reputation, and convenient access (branches or online services).
- Prepare Documents: Usually, you need an ID, NPWP (taxpayer number if requested), and a deposit opening form.
- Set Duration and Amount: Decide on the deposit term and minimum deposit.
- Deposit Funds: Transfer or deposit funds at the bank. Receive a physical certificate or digital confirmation.
- Confirmation and Rollover: Banks inform you before maturity; you can withdraw or renew automatically.
Online Deposits
With technological advancements, many banks offer online deposit services through mobile or internet banking, simplifying processes significantly.
Case Study: Education Savings
Deposits can secure education funds, e.g., Rp50 million needed in two years. Depositing funds ensures money is safe from inflation and impulsive spending, while still earning interest.
Risks and Considerations
Deposits are secure but not entirely risk-free:
- Early Withdrawal Penalties: Penalties apply for early withdrawals.
- Inflation Risks: Deposits may lose value if inflation exceeds interest earned.
- Bank Default Risks: Banks might face financial difficulties; however, LPS covers deposits up to Rp2 billion per depositor, per bank.
- Term Restrictions: Funds are locked until maturity.
Islamic vs Conventional Deposits
- Conventional: Fixed interest rates.
- Islamic (Sharia): Profit-sharing model with variable returns.
Both types are secure and covered by LPS.
Maximizing Deposit Returns
To maximize returns:
- Compare interest rates across banks.
- Choose appropriate deposit terms.
- Avoid premature withdrawals.
- Spread deposits across multiple certificates.
- Use automatic rollover features.
Investor Examples
- Large Investors: Use deposits to manage medium-term liquidity with stable returns.
- Beginner Investors: Choose deposits for simple, secure investing without specialized knowledge.
Deposits vs Regular Savings
Savings: Flexible withdrawals, low interest, administrative fees; suitable for emergency funds.
Deposits: Fixed-term, higher interest, minimal fees; suitable for medium to long-term savings.
Conclusion
Deposits are secure, stable, fixed-term bank savings with predictable returns, ideal for conservative investors and specific financial goals.
Hopefully, this clarifies what deposits are and whether they suit your investment and savings goals.
