Bank deposits are always the most popular financial management method chosen by ordinary people because they are worry-free and safe. Although the advantages of bank deposits are so obvious and convenient, if not chosen well, one can still suffer losses.
Lesson: Depositing without planning, all interest is lost.
Lao Zhang has made some money from his small business in the past two years. Due to the poor market conditions, Lao Zhang thought about depositing the money he earned into the bank, at least to earn some interest.
Lao Zhang took stock and found that he had 200,000 yuan on hand. He visited several nearby banks and found that the interest rates were not very different. The one-year deposit interest rate was about 1.5%, while the three-year deposit interest rate could reach around 2.75%.
Lao Zhang did a quick calculation in his mind: If he took out a 100,000 yuan certificate of deposit that had just matured, he would have a principal of 300,000 yuan. If he deposited it for one year at a fixed term, the annual interest would be 4,500 yuan, and the three-year interest would be 13,500 yuan. If he deposited it for three years at a fixed term, the annual interest would be 8,250 yuan, and the three-year interest would be 24,750 yuan.
The difference between the two is quite significant, a difference of over 10,000 yuan. Without hesitation, Lao Zhang went home, took the money, and went to the bank to open a three-year fixed deposit of 300,000 yuan.
Lao Zhang thought to himself, without doing anything, just putting the money in the bank for three years, the bank would give him nearly 25,000 yuan in interest, which is quite cost-effective.
However, life is always full of unexpected situations. Two years later, his son suddenly announced that he wanted to get married with his girlfriend and asked Lao Zhang to prepare the money. This worried Lao Zhang. Borrowing from others might be manageable for smaller amounts, but no one would lend you hundreds of thousands of yuan for no reason. Not borrowing was not an option either, as his deposit would not mature for another half a year, and while he could wait, his son's wedding could not.
As the scheduled wedding date approached without the money to prepare, Lao Zhang had no choice but to grit his teeth and withdraw the 300,000 yuan from the bank. The bank staff informed Lao Zhang that since it was an early withdrawal, he could only be paid interest at the demand rate of 0.35%.Lao Zhang, holding a deposit of 300,000 and over 2,000 yuan in interest, felt a wave of regret. If he had known, it would have been better to deposit for a fixed term of one year; at least the interest for two years would have amounted to 9,000 yuan.
Before making a deposit, it is important to consider the interest rates and liquidity.
In fact, the reason why Lao Zhang suffered this loss was mainly due to a lack of planning and consideration before making the deposit. He only thought about earning a little more interest but did not consider whether he might need to use the money in the future.
The problem Lao Zhang faced is also a choice that many people have to face in reality. When making a deposit, is it better to deposit for one year or three years?
This brings us to the issue of the interest rates and liquidity of deposits.
In economics, "liquidity" refers to the ease with which an asset can be converted into a means of payment or cashed out. Once we deposit cash into a bank, we receive a certificate of deposit or a passbook, and its liquidity is reduced; it can only be converted back into cash upon maturity.
Interest rates are more familiar to everyone; we always check what the interest rate is before depositing money in a bank. The interest rates we commonly refer to are usually the rates implemented by banks.
So, what is the relationship between interest rates and liquidity? There is an inverse relationship between interest rates and liquidity. That is to say, the higher the interest rate, the worse the liquidity; conversely, the lower the interest rate, the better the liquidity.
For bank deposits, the interest rate for demand deposits is the lowest, but they can be withdrawn at any time, offering the best liquidity. On the other hand, the interest rate for fixed-term deposits of three years is relatively higher, but the liquidity is poorer. It cannot be cashed out within three years unless you are willing to forgo most of the interest.Therefore, when making a deposit, it is essential to consider and balance between interest rates and liquidity based on our own circumstances. Focusing solely on high returns is not advisable.
A few tips to help you have your cake and eat it too.
Is it necessary to sacrifice liquidity or high interest rates? Not necessarily. As long as we use a bit more creativity when making a deposit, we can solve this problem to some extent, allowing you to have both the fish and the bear's paw. If you are in a dilemma the next time you make a deposit, you might want to try the following methods:
Ladder savings method: Taking a principal of 300,000 as an example, divide the 300,000 principal into three parts, each worth 100,000. Deposit one part of 100,000 for a one-year term, another part of 100,000 for a two-year term, and the last part of 100,000 for a three-year term. After one year, when the first 100,000 matures, re-deposit it for a three-year term; after the second year, when the two-year term deposit matures, also re-deposit it for a three-year term, and so on.
The advantage of this method is that every year, you have a deposit maturing, which can meet your withdrawal needs. And after three years, all of your deposits will be three-year term deposits, enjoying the high interest rates of a three-year term. While reaping the benefits of high interest rates, you also have a three-year term deposit maturing every year, which can be withdrawn, thus solving the liquidity issue to some extent.
Of course, this method can be adapted. You can divide the principal into five parts and operate according to the aforementioned method, allowing you to enjoy the interest rates of a five-year term deposit.
Relaying savings method: Taking the 12-CD method as an example, deposit one certificate of deposit (CD) each month, and after 12 months, you will have 12 CDs. If you need money urgently, you can withdraw the CD that is about to mature, which will not affect the returns of the other CDs. If there is no need for money, after maturity, roll over the principal and interest into a new CD.
Similarly, we can also carry out the 36-CD method (for a three-year term) and the 60-CD method (for a five-year term).Categorized Savings Method: Taking a principal of 300,000 as an example, if you are afraid of trouble, you can try the categorized savings method. First, make a rough assessment of the money you might need in the near future, let's take 50,000 as an example.
Divide the principal into two parts, 250,000 and 50,000. The 250,000 seeks a high interest rate, and you can deposit it in a 3-year or 5-year term deposit, after which you don't have to worry about it; the 50,000 seeks liquidity, ensuring that it can be withdrawn at any time, and it is recommended to purchase a money market fund.
The most common money market funds are WeChat's Wallet and Alipay's Yu'e Bao. Their biggest advantage is that they can be withdrawn at any time, and the current interest rate is not only higher than the demand deposit rate but also higher than the 1-year term deposit rate, making them very suitable for the storage of small amounts of funds.
Bank deposits are a form of financial management that we often encounter, but how to deposit still requires some thought, so that it can both facilitate our lives and bring us more interest income. If you have any tips and experiences in bank deposits, you are also welcome to share and communicate.
