TERM DEPOSITS are amounts of money deposited in the bank for a defined term (one month, 3 months, 6 months, one year, etc.) for which the bank provides a bonus rate to the depository through interest. The interest granted by the bank is annual, and if the deposit is made for less than one year, the received amount of money shall be a fraction of the interest stated by the bank, adequate to the number of days of the deposit.
GOVERNMENT BONDS are among the least risky instruments, as they are issued by the state treasury, in the national currency or in foreign currency. They are short term issued bonds, with a maturity of less than one year, intended to cover temporary domestic deficits or to finance national governmental projects (in the US, the government bond maturity varies between one week and 182 days).
Government bonds are issued with a discount, and they are subscribed by investors for a value lower than the nominal value, and, on the due date, the state is to redeem them at their nominal value. Such bonds are not interest bearers, and the difference between the subscription price and the nominal value is the investors’ profit. Investors have the option of reselling the government bonds on the secondary market or they can withdraw them before their due date, if they need liquidities.
DEPOSIT CERTIFICATES are negotiable financial bonds certifying the establishment of a term deposit in a bank. Such instruments are very liquid and they have minimum risk, and they can be used by the holder in various scopes: discount, lien, bank guarantee, etc. The deposit certificate offers the option of investing money on defined periods, with a higher interest rate for a higher certificate term. At this time, there are also deposit certificates available for a term of over one year.
Deposit certificates can include interest or discount. The difference is that, for the discount certificate, the interest is collected in advance, and on buying, the client pays less money than the value thereof. On the maturity date, it shall receive the full value of the certificate.
Deposit certificates can be nominal, in which case they shall be redeemed by the same person buying them, or non-nominal, allowing the transfer of the certificate by sale or assignment.
Compared to term deposits, the deposit certificate has the advantage that it can be redeemed prior to the maturity date, and the bank shall not charge penalties. The bonus rate interest shall be calculated, in this case, from the certificate buying date to its selling date.