Savings

Introduction

Opening a deposit account with a bank means a client can deposit savings safely, while earning a modest return (interest). Keeping cash in your "mattress" or in a safe at home is not real saving. It is just physically storing money. There are several risks attached to "mattress" savings, including theft, fire, failure to detect counterfeit notes, etc. What is more, such savings do not grow. Their purchasing power actually decreases due to inflation. Unlike a current account, a deposit account provides a return, which depends on how much money has been deposited and for how long. How safe the deposit is will depend on the bank's solvency and liquidity. Deposits in Bosnia and Herzegovina are also covered by state deposit insurance schemes which guarantee all individual deposits up to 50000 KM.

Deposit accounts can be in either domestic (KM) or foreign currency (generally Euro, but other currencies too). Which currency to save in depends on client preferences, future spending intentions, confidence in a given currency, and yield (the interest rate), which will differ for different currencies. Deposits are divided into two broad groups on the basis of contractual obligations and maturity - time and savings deposits.

Many countries use deposit insurance to protect bank customers fully or in part from losses caused by a bank being unable to cover its liabilities on demand. Deposit insurance systems are normally part of a wider financial system safety-net that promotes financial stability. They provide depositor security and bank clients should check that their bank is in the deposit insurance system. The State Agency for Deposit Insurance in BH works with majority of banks in Bosnia and Herzegovina (see the Agency web site: www.aod.ba). Personal deposits are currently secured by the Agency up to 50000 KM. This means that if a bank covered by deposit insurance fails (becomes insolvent), all depositors will get their deposits back from the state Agency, up to the 50000 KM limit. The guarantee covers all personal claims, regardless of currency (domestic or foreign) and maturity (saving, time, current deposits, or other kind of deposit). When a bank goes bankrupt, a public announcement will tell depositors when and where they will receive their deposits.

Unlike other forms of income, interest is not taxed in Bosnia and Herzegovina, so that depositors pay no taxes on income earned from their deposits, which is a further incentive for increased saving. Depositors should, however, be aware that taxation law may change in the future.

What to keep in mind when depositing money with a bank?

• Gather detailed information from several banks about the various kinds of deposit accounts and compare their advantages before deciding. Saving at a bank may entail benefits regarding other banking products, so the client should know what is on offer, beyond just the interest rate.
• Compare deposit interest rates. Interest rates offered on the same kind of deposit can range widely. Banks' needs and preferences regarding deposits differ, so they offer different interest rates. Clients should look into these differences (just like the prices of any other goods or services) to identify the most favorable conditions for them, as there is no point complaining later.
• Be aware that interest rates can change over time. Banks offer both fixed and variable rates on deposits. The client should be aware that even fixed interest rates sometimes change. Banks often advertise 'fixed' rates, but reserve the right to change them in line with market developments during the deposit term. Client should inform themselves on precisely when and how interest rates can be changed and how they will be informed.
• Investigate the rules for early termination. Clients should know when and how the deposit contract can be terminated and what consequences early withdrawal may have. Unpredictable situations sometimes cause depositors to request early termination, giving rise to serious problems for clients unfamiliar with the conditions.
• Learn how the interest rate is calculated. It is important for the payment schedule. Clients should know how often (monthly, annually or on expiry of time deposits) interest will be calculated, in what amount and in which currency. Depositors may prefer to receive monthly rather than annual interest payments.
• Find out if the bank is in the deposit insurance scheme. This is vital information.

Types of deposit savings accounts

1. Accounts which allow early withdrawal (savings deposit). Most savings accounts are very similar to current accounts. The most important differences are:
   • The bank gives the client a savings book to record changed balances.
   • To reduce fluctuation in the balance, there may be restrictions to how withdrawals and payments are made. In many cases utilities cannot be paid using the regular pre-order form bills. To compensate for these restrictions, the interest rate will be higher than for a current account
2. Accounts which do not allow early withdrawal (time deposits). Time deposits allow the client to deposit a specified amount of money with a bank for a specified time. Once the deadline is up, the bank returns the deposit, along with the agreed remuneration (i.e, interest). Unless otherwise agreed, this will be the regular interest for the full operation. Some time deposit contracts allow money to be withdrawn before an agreed deadline passes, albeit for a penalty.
3. The fundamental difference between savings and demand deposits (current accounts) is that it is only from the latter that the client can withdraw money immediately and without penalty. The corollary is that interest on time deposits is usually higher. It is therefore important for depositors to understand that for some time deposits early termination is not an option.
4. Some banks in Bosnia and Herzegovina offer what are called "free" or "open" savings, a product that combines the characteristics of savings and time deposits. After contracting for an initial deposit, the client can add additional sums to it. The client also can make withdrawals during the contract period, as long as the balance remains above a minimum amount agreed in advance. Different banks set different minimum amounts and different conditions for early termination, so that depositors must inform themselves properly.

Opening a deposit account

Opening a deposit account involves filling out and signing a form provided by the credit institution. This form constitutes the contract.

It is very important to identify the account holder clearly (and, where applicable, any other authorized signatories), as well the type of deposit contract and the conditions for accessing funds.

Some banks allow accounts to be opened without contact with the client in person, but certain formalities to verify identity will then be necessary.

In addition to personal details, banks may request other information they consider essential for a given type of deposit account.

Documents to prove identification details must be originals or certified copies.

Personal details for individuals usually include:

Full name and signature; Date of birth; Full address; Occupation and employer (if any); Postal address; Type, number, date and issuer of the identification document. Banks also often require a certificate of residence.

Non-residents must show a passport or identity card or equivalent document with the holder's photograph and signature, issued by a competent public authority.

Minors can hold deposit accounts, but the accounts must be opened for them by their legal representatives (parent or guardian) or an organization with appropriate documented standing. Minors who do not hold any of the identification documents mentioned above can be identified by their birth certificate.

Legal persons can also open deposit accounts, but must provide appropriate identification information, which we will not describe here.

Rights and responsibilities regarding bank deposits

Rights of the client

The customer has the right to access the full amount deposited on maturity or, in the case of early mobilization, as permitted by the agreed conditions. For authorized early withdrawal of time deposits, the relevant amount must be available on the working day following receipt of notice, unless otherwise specified in the deposit agreement.

The bank client is also entitled to complete information on deposits, both before making the deposit and for the duration of the deposit agreement.

Pre-contract: The bank customer is entitled to clear and full pre-contractual information on the nature of the contract. Different offers should be compared to allow a proper decision to be made.

Contract: The customer is entitled to receive a copy of the contract and a savings book containing accurate data about the deposit. During the agreed deposit period, the customer should have access on request to the terms from the bank. The bank must also provide the customer with a statement detailing all transactions, as well as interest, fees, charges, and all other changes.

Before any changes permissible under the contract are implemented, the bank must inform the client of them in detail.

When automatic renewal of a term deposit has been agreed, the bank must inform clients in advance of any changes in conditions in the coming period.

Responsibilities of the client

The depositor's responsibilities regarding the deposit contract include:

• To provide the bank with all relevant personal details at the time of contracting, as well as of any changes during the term of the deposit agreement;
• To maintain the agreed balance level on the account.