Deposit VS Bond։ What You Need to Know When Investing

You decide to put your savings in the deposit amount of the bank, for example one million drams, but the bank employee insists that you made the wrong decision. Imagine the situation and your reaction...

In this article, we will try to present how justified is the advice of a bank employee, and what the bank can offer you as an alternative to a deposit. We present - you choose the type of investment.

Let's compare the deposit and the bond according to several criteria.

Money Back Guarantee

- Deposit

The amounts of deposits placed in banks are insured by the Deposit Guarantee Fund.

Deposit funds can also be insured by the bank.

- Bond

The amount invested in bonds is also guaranteed.

Early suspension capability and liquidity (ability to quickly convert to cash)

- Deposit

Early suspension possible. However, in case of early suspension of the deposit, as a rule, the depositor loses income, unless otherwise provided by the terms of the deposit.

- Bond

Bonds can be sold on the secondary market. The price of a bond in the financial market depends on a number of factors: the creditworthiness of the issuer, the remaining maturity, the general level of interest rates, etc.

Taxation
- Deposit
Income from the deposit is subject to income tax.

- Bond
Income from the sale of bonds or coupons is not taxed.

Change in the value/number of invested assets
- Deposit
The amount of a one-time deposit can be changed in one case: interest is added to the principal amount (capitalised).

- Bond
Under favorable market conditions, the price of a bond may increase, which may become an additional source of income in addition to coupon income.

Interest rate/coupon income

In the banking system of Armenia, the interest rate/yield of deposit products and bonds may not differ significantly.

Earning interest/currency income

Consider the problem on the example of a 36-month deposit and a bond.

- Deposit

Interest income on the deposit is paid at the end of the deposit term, in the case of the vast majority of products. This means that the client will receive the earned income and will be able to reinvest it only after the end of the deposit term.

- Bond

As a rule, payment on the voucher is made once every six months. Thus, the income from investing in the bond will be received by the client and can be realized before the maturity of the bond.

The bank is controlled by the Central Bank.