Banks now pay more than 3 percent on fixed term deposits

Fixed term deposits can now earn more than 3 percent in interest, Finnish public broadcaster Yle reports. The rate depends on how long the money is deposited, and demand for the products has increased as interest rates have risen.

The European Central Bank raised its policy rates in September, pushing up rates on fixed term deposits. Short term market rates, including Euribor rates, have also been affected by inflation expectations linked to the situation in Iran, the Strait of Hormuz and oil prices, Aktia’s head of saving and investment, Thomas Lindholm, told Yle.

Aktia currently pays just over 3 percent on a 12 month deposit. Shorter deposit periods pay slightly less. Lindholm said the amount deposited does not affect the interest rate.

At S Bank, fixed term deposit rates range from 2 to 3 percent, depending on the deposit period. The bank’s director responsible for consumer customers, Sari Köykkä, also said the deposited amount does not affect the rate.

Demand for fixed term deposits has followed interest rate movements at Aktia and has started to rise again since the summer. S Bank has also seen growing interest, as customers seek better returns on their savings than those offered by ordinary current accounts.

With a fixed term deposit, a customer places a set amount in the account for an agreed period and receives a predetermined interest rate. When the period ends, the principal is returned. In Finland, interest income from fixed term deposits is subject to a 30 percent withholding tax.

Aktia’s most popular deposit period is 12 months. Lindholm said fixed term deposits are suitable for people who do not need immediate access to their money and want to avoid investment risk.

He advised customers to consider the interest rate, how the interest is calculated, withdrawal terms and the deposit period when choosing a savings product.

A longer deposit period does not always result in a higher interest rate. If rates rise in the future, a longer commitment may provide a better return, while expectations of falling rates can make a longer deposit less attractive, Köykkä said.

Customers should place only money they will not need during the deposit period in a fixed term deposit. Those who need quick access to their funds could instead choose a savings account or a short term interest fund, Köykkä said.

Fixed term deposits are covered by the deposit guarantee scheme. Lindholm noted that fixed term deposits may offer lower returns than other interest investments, such as interest funds or equity investments, over a longer investment horizon.