Saving is one way that can be used to manage personal finances. Saving can also be used as a means of preparing for future needs. However, not a few people still find it difficult to set aside a portion of their income for savings. For someone who has a strong determination to discipline himself in saving money to meet the needs of a certain period of time, term savings can be a solution. But before joining a term savings account at a bank, you should first understand the advantages and disadvantages of term savings.
The advantages and disadvantages of term savings that will be presented are from a general perspective, because not all financial institutions apply the same policies. Here’s the full explanation.
1. High Interest Rates
The first advantage of term savings is that the interest rate offered is relatively higher. Generally, term savings have an interest rate of between 3% and 7% per year. relatively higher when compared to conventional savings which have an interest rate of between 0% to 2%.
2. Insurance Guarantee
The second advantage is the insurance guarantee. Most time savings products are equipped with life insurance. Although the details of each bank are different. Some provide life insurance for calamities such as total disability or death. There are also those who provide insurance / guarantees to continue deposits until the end of the savings period if the customer cannot continue for some reason.
Read also: Definition of Term Savings
3. Small Initial Deposit
The fourth advantage is that the initial deposit is quite light. When compared to time deposits, the initial deposit for time deposits is somewhat lighter. For example, time deposits apply a minimum deposit of IDR 8,000,000.00 in a certain period of time, while a time deposit with a minimum of IDR 100,000.00 per month.
4. Discipline on Saving
The fifth advantage of term savings is that it can be used as a means of increasing discipline in saving. With a binding period, term savings indirectly teach customers to be disciplined in saving. It seems pushy, but the effect is very positive. Especially for customers who find it difficult to save money.
In addition to these advantages, also understand the disadvantages that arise from time deposits, including the first, namely illiquid funds. Customers are not free to withdraw their savings at any time, but must wait until the end of the previously agreed period. So that if a customer needs funds for emergency needs, they cannot use the savings fund. There are several banks that implement a policy of savings that can be withdrawn before maturity but have to pay significant administrative fees.
The second disadvantage is that the time savings certificate cannot be used as collateral. In contrast to a certificate of deposit which is classified as an asset, so that it can be used as collateral to apply for a bank loan.
An explanation of the advantages and disadvantages of term savings can be used as a consideration before joining a term savings service at a bank. However, this term savings is highly recommended for someone who is planning needs at a large cost for a certain period of time.