Fixed term definition with explanation

Fixed term

A fixed term is the commitment to pay on a certain date. As when it is in sight , it is an existing possibility when facing a possibility of a payment in documents, investments, promissory notes or bank deposits, especially.

Explanation of fixed term

One of the main advantages of fixed-term economic operations is that they are usually investment alternatives. These ensure previously known returns, from the first moment of facing the operation.

In the field of bank deposits , this type of mechanism is perfectly widespread. In this way, ensuring individual investors can have the amount of money deposited. Always on the predefined date at the start of the operation.

On the other hand, this security is added to the existence of an interest rate that benefits the investor. All this, in exchange for a bank or savings bank to have that money until the marked date. Its purpose being to allocate it to its activity, as well as committing to its return with interest within the agreed period. In this type of situation, certificates or fixed-term deposit certificates are delivered, as proof or justification of the commitment between both parties.

With regard to interest, these are usually paid on the due date. However, it is also possible that they will be delivered periodically during the duration of the contract. That is, in a fractional way.

Usually, the fact that an operation is carried out under a fixed-term condition implies that the free availability of money becomes a reality only at the expiration of the date foreseen at the beginning. Well, it is at this time that the indicated amount can be withdrawn or charged. Also, alternatively, a renewal could be made and a new expiration date proposed. Another common operation that can be carried out on a fixed term is the granting of loans by financial institutions.

Carrying out fixed-term operations, and not at sight, may have certain advantages or differences. Always taking into account the use that is given to each of these possibilities.

Usually, operating at sight is more common in activities with great periodicity and if you want to have economic resources in the shortest term. This is the case of savings accounts in a bank that allow systematic money management. In the opposite case, for a fixed term, this money deposited is usually used with the intention of carrying out important investments or disbursements in the future.

In addition, in most cases, in fixed-term operations it is not allowed to operate with the amount of money in question. Always, from when the commitment is assumed until the final date, as well as with the corresponding interest.

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