1. Deposit Products*
1.1. What is a current account?
A current account is held by the bank for keeping client’s money available on sight as the client may draw and deposit money, order or receive funds at any time, without a restriction and as a result the interest paid on a current account is lower compared to that offered to the client on a term deposit or a saving deposit. Banks may offer their clients higher interest rate on current accounts, but it is usually related with a condition, e.g. a requirement for a minimum amount for opening an account, salary transfer to that account, etc. Current accounts are used mainly by the clients for payments.
Physical persons, clients to the banks can open a basic bank account since 2017. This account is opened in BGN and definite services can be done free of charge or at reasonable fees regardless the number of payment operations performed through the account. The reasonable fees should be simultaneously lower than the average amount of fees collected by the banks in the country and applied to consumers and the lowest fee that is applied in the bank’s tariff for each service related with a current account. All banks licensed by the BNB and branches of foreign banks working on the territory of the country that provide payment services to consumers should offer a basic bank account.
1.2. What is a term deposit?
Term deposits are created by opening of a deposit account as the client concludes a contract with the bank and in accordance with this contract the client deposits a certain amount of money in the bank for a preliminary fixed period of time as the bank is obliged to pay out certain interest at a definite time (at the end of the agreed period, in advance or in other preliminary defined period, e.g. at the end of each month).
Term deposits are with a fixed period for which the interest rate agreed between the bank and the client is valid. The interest rate on term deposits is higher compared to that on a current account and it usually increases when the term of the deposit for which the contract is concluded is enlarged, e.g. 6 months, one year, etc. If the deposit is drawn earlier than the agreed period, the client usually loses the interest or a part of it. If the client wants to deposit additional funds on a term deposit, it is recommended the client to ask for the existence of an option for depositing funds at any time until the expiration of the deposit without breaking the agreed interest. It is accepted that the interest rate on the deposit is announced on a yearly basis as a simple interest rate but not for the agreed term of the deposit. For example, if a three month deposit is concluded and the interest is 4% on a yearly basis, at the maturity of the deposit the interest that the client will get is 1% on the amount of the principal.
1.3. What is a saving deposit?
Saving deposits are opened for keeping clients’ money against issuing a saving book to the client or a document containing similar data. The account on which a saving deposit is opened is usually unlimited, i.e. the client may draw and deposit money at any time. However, it is possible the bank to envisage a period of notice, which means that it is necessary the client to declare the intention to draw the money from the saving account in advance. Despite saving deposits are very similar to current accounts, there is usually a condition or an event that should occur to enable the client to draw the accumulated funds on the saving deposit and for that reason the interest offered on saving deposits is usually higher than that offered on current accounts. Child’s saving deposits offered by some banks today were also very popular in the past as a type of a saving deposit.
1.4. What is an overnight deposit?
Overnight deposits are deposits with a maturity of one day. These deposits are usually made by corporate or institutional clients to the banks for big amounts of money. The interest rate on overnight deposits is usually higher than the interest rate offered on current accounts.
1.5. What is a structured deposit?
Structured deposits are still not typical for the Bulgarian market but they are already offered by some banks. These deposits combine the characteristics of a typical deposit with an investment on the capital market. The payment of interest or premium on that deposit depends on an index or combination of indices, financial instrument or a combination of financial instruments, stock or combination of stocks or other tangible or intangible assets, exchange rate or other similar factors.
1.6. What is a balance and changes of the account balance?
A balance on an account means the accumulated funds on the client’s account at a certain date. All inflows and outflows as a result of ordered and received transfers on the account, drawing and depositing of funds as well as funds from buying and selling currency are called changes of the current account balance.
1.7.What is the maturity of a deposit?
The maturity of a deposit is the date when the deposit contract expires as this date is fixed in the contract with the client. This is the date on which the full amount of interest is accrued and the client is free to use the money from the deposit. For example, after the deposit has been matured the client may draw and deposit funds, may change the time of the deposit, or transfer it into another type of a deposit.
1.8. What is the difference between simple and capitalized (compound) interest?
The simple interest is calculated only on the amount of the principal of the accumulated funds as the accrued interest for the definite period is not added to the principal. In contrast to the simple interest the capitalized or the compound interest is calculated by adding to the principal the accrued interest from the previous period and in that way it brings yield for the next periods together with the principal.
*This information has only educational purpose.