OREANDA-NEWS. On 04 May 2009 was announced, that 64% of residents in Latvia do not distinguish between such types of savings as a savings account and a deposit, according to GE Money Bank research data. “This could be one of the barriers in improvement of well being of Latvian households,” concludes Aleksandrs Cernagins, Savings and investment product manager, GE Money Bank.

Although in the research 62% of respondents initially confidently respond that they know the difference between the savings account and the deposit, upon more profound verification of this knowledge it turned out that respondents quite often are not able to mention features of a specific investment type or confound them.

For example, approximately every third respondent considers that a fixed deposit term is characteristic also of a savings account, 43% think that it is possible to increase a sum placed on a term deposit. The same number of respondents are convinced that it is not possible to withdraw money from a savings account freely not losing profit interest.

“We can explain such data also by the fact that no distinct savings culture has formed in Latvia so far, up to now we could talk only about its opposite direction – spending. It’s confirmed also by data that 62% of Latvian residents live from one salary to another and about every third household has savings in the amount of 1-2 monthly salaries. The current situation requires different action - change of habits – now it’s the last moment when we should turn from spending to saving and start showing interest in various ways of doing it,” points out A.Cernagins.

The trend indicating that people lack knowledge in financial matters was observed already in GE Money Bank Financial wisdom index research conducted at the end of last year. Though the financial knowledge index of Latvian residents was the third highest out of six countries, in terms of points it was quite low – 37 points out of 100.

It was also revealed in the research that on average Latvian residents more seldom check on whether financial products they use are still profitable for them. In Latvia 35% of residents do so, while in Rumania – 62%, in Poland – 48%, but in Hungary – 45%. Also only 17% of our country’s residents admit that they are wise investors.

How to choose savings product – how can one know which is right?

A.Cernagins adds: “There are no right or wrong types of savings, what differs are opportunities they offer. The main thing is start saving and choose an appropriate type of deposit for a specific purpose. If a bigger sum is available, which won’t be required for some time, then a term deposit is effective as interest rates are high enough at the moment. While if a person started saving recently and is not really sure whether he or she will need the money soon, then it’s better choosing a savings account, which is more flexible product. Its advantage is opportunity to supplement it at any time as well as availability of savings, though rates for savings account will be lower that for termdeposti. Savings account is opportunity to strengthen savings habit.”

How do the savings account and the deposit really differ?

The term deposit: a definite sum of money is deposited for a fixed period of time and accordingly with fixed interest rate. Interest profit usually is paid out at the end of the term. Usually It is not possible to increase a deposited sum, as well as for withdrawing it ahead of term a customer most probably will have to pay a penalty and will lose earned interest.

While the principal features of a savings account are as follows: a definite sum must be placed on it upon account’s opening, which can be increased during the period of savings. The rate is floating, while it is possible to withdraw accumulated money at any time taking into consideration bank’s term of warning. A penalty is not applied to withdrawal of money from the savings account ahead of term, and accumulated interest is not lost. Interest profit is paid out on a monthly basis.