A deposit is a banking product through which the client can make their savings profitable within a period set in advance. Specifically, the money is left without being able to use it for a specific time and when the set date is reached, the amount given is returned along with agreed interest. The import will be the one agreed upon with the entity and must be signed in the contract. These financial products have the characteristic of not being able to have the money within the time established by contract, so if you want to cancel it ahead of time, the bank may charge you commissions.
Its main characteristic is the unavailability of money, which allows for greater profitability than, for example, a demand account. This is confirmed by the Bank of Spain (BdE): “generally, it offers greater profitability than a demand account, based on the unavailability of the money during the contracted term.” The term can vary from months to several years and experts advise assessing liquidity needs to choose between one term or another.
The period during which this money cannot be used is set in the deposit opening contract. However, although the objective of the term deposit is to keep the money for the stipulated time to obtain greater profitability, it is possible that the deposit holder needs the money before maturity and could resort to it with the cancellation of the deposit. To do this, it is necessary to communicate it to the entity and it is recommended to make the communication in writing.
Commissions set in the contract
Of course, in case of cancellation, it is common for the holder to have to pay a penalty in the form of a percentage of the interest rate or commission. In the case of commission, the BdE explains that any commission charged by an entity is free, although with limits: “the maximum of the interest accrued since the deposit was contracted until the cancellation date.”
However, this limitation does not affect the entity’s obligation to practice the tax withholding provided for in the tax regulations, so it may happen that after early cancellation it obtains an import that is lower than the amount initially deposited.
Likewise, in order to be able to apply a commission or a penalty on a term deposit, it must be included in the contract. Therefore, it is recommended that before contracting a deposit you pay attention not only to the remuneration that will be received, but also to the rest of the conditions, such as the possibility of prior cancellation and its corresponding penalties.
If this information is not included in the contract and there is no agreement between both parties – between the client and the entity -, early cancellation cannot be carried out by the sole will of one of the parties. In these cases, reminds the BdE, it is necessary for the entity and the client to reach an agreement on the conditions under which this early cancellation could take place.
Cancellation is possible in most deposits, but the BdE recalls the particular case of structured or hybrid term deposits, in which the profitability is linked to the evolution of a certain index, the value of a basket of shares, or even whether a future event takes place or not. “The entity will probably not allow early cancellation and, if allowed, it will be under very different conditions than traditional deposits,” he warns.
In addition to the commission or penalty for canceling a deposit, it must be taken into account that when there is more than one holder and one of them intends to cancel the term deposit early, it is necessary that the early cancellation order be given by all the holders. Headlines. But it is also possible that it is the bank itself that carries out the early cancellation of the fixed-term deposit. This will occur if so provided for in the contract and with the notice period indicated therein.