Prolongation of the deposit — what is it in simple words

In this article, we will consider the nuances regarding the prolongation of bank deposits. What is it, is it worth using, what are its pros and cons.

Prolongation of the deposit is an automatic extension of the bank agreement on the deposit.

The prolongation of the deposit occurs for the entire initial amount plus the amount of accrued interest. The term is the same as the original contract. The rate of return will be the one that is currently valid on this deposit.

The presence of prolongation is prescribed at the time of signing the deposit agreement. Some banks do not support this feature.

In some cases, when the extension of the deposit is not provided, the funds can simply be transferred to a demand deposit at 0.01%. At the same time, the bank will not call and remind about it, since it is beneficial for it to keep depositors’ money at a low interest rate.


When prolonging the rate may be less than the current. Therefore, it is worth checking the current rate yourself.

For example, in Tinkoff Bank, a deposit is automatically extended with a yield of 0.5% below the current rate. That is, if you go to the application, click to close the deposit and open a new one, you can win half a percent.


An example of extensions on a deposit

For example, the deposit was opened on June 24, 2019 for 1 year at 8%, the amount is 100,000 rubles. Closes on June 24, 2020, the amount for this day is 108,000 rubles. If an extension is provided, then there will be an automatic extension for 1 year: until June 24, 2021 at the current interest rate for that day.

Is an extension worth it? How beneficial can it be? On the one hand, this service can be convenient for the client: there is no need to go to the bank once again and re-register the contract, but on the other hand, profitability may decrease significantly. The bank can significantly change the interest rate from the one that was originally. For example, there was 8%, and the current 4%. Not the fact that the client wants to have such a low yield. You can look in other banks for a more attractive rate.


It also happens like this: a client deposits money at a seasonal offer with an increased rate (usually it is 0.5% more or in rare cases 1.0% more than the average market offer). Such offers are most often found in February, before the May holidays and at the end of the year. A year later, this promotional offer is no longer there, and the contract says that the prolongation occurs automatically for some standard deposit that will have a low rate of return (even below the average for banks).

Of course, not all banks have this disadvantage. Some act honestly by renewing at the current rate.


Note

In the 2010s, some banks even offered a bonus to the current interest for keeping money with them for a long time. But this is no longer the case.


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