Investing surplus cash in a term deposit

This page was last modified on 30-01-2013

A term deposit, also called a deposit account, is used to invest a sum of money for a predefined term and at a predefined interest rate.

The purpose of a term deposit is to invest surplus cash in such a way as to:

  • ensure sufficient liquidity and returns;
  • reduce financial charges;
  • know the maturity date and final amount;
  • invest capital without incurring any risk.

Objective: a term deposit enables the investment and productive management of a business' cash.

Who is concerned

Term deposits are available to the self-employed and any type of business with surplus cash that is not immediately required. This surplus may be the result of:

  • the collection of large payments;
  • the settlement of large invoices for works and services provided;
  • long terms of payment granted by suppliers;
  • efficient cash management.

As businesses generally seek the simplest solutions that offer the best return without the risk of losing capital, they often opt for a term deposit.

Prerequisites

Since a term deposit is simply a secondary account linked to a main account, the only prerequisite is the existence of a current account.

How to proceed

Description of term deposits

Application terms and conditions

Amount: the minimum amount applicable to a term deposit depends on the bank.

Duration
  • generally short-term;
  • up to one year, although longer terms can be negotiated with the bank.
Interest income
  • the interest rate:
    • depends on market rates and in principle increases over time and according to the amount invested;
    • is fixed for the entire duration of the operation.
  • interest is:
    • payable on maturity or annually for operations of more than one year;
    • calculated on the basis of the exact number of days between the investment date and the maturity date.

Set-up times

The time required to open a term deposit depends on various factors, including, for example, the banking relationship between the business and the relevant bank, the legal status of the business or company and the applicable law of the company (Luxembourg or foreign law).

Advantages, disadvantages and risks

Advantages

  • risk-free investment with interest determined in advance;
  • attractive return on larger amounts;
  • low charges (depends on the bank).

Disadvantages

Termination or cancellation fees if the investor terminates the contract early (depends on the bank).

Risks

Risk of exchange rate fluctuations for deposits in foreign currencies.