swiss fixed deposits vs medium term notes

Swiss Fixed Deposits vs. Swiss Medium-Term Notes

What are the differences between fixed deposit accounts and securitized medium-term notes?

The terms fixed deposit, term deposit and time deposit all denote special bank accounts with which money is "frozen" and cannot be accessed until the end of a pre-agreed period of time (the fixed term). You earn interest on your deposit at a fixed rate across the full term. In Switzerland, the term fixed deposit is primarily used for fixed deposits with fixed terms of 6 months to 1 year. The terms time deposit and time deposit account are commonly used for fixed deposits with terms above 1 year.

The interest rate is set at the start of the investment term. Interest is paid out at predetermined intervals. It is possible to withdraw your money before the end of the fixed term, but you pay penalty fees when you do this.

In Switzerland, medium-term notes are more widely used for medium-term investments than time deposit accounts. A medium-term note is a type of security issued by banks (and some other entities) which pays interest at a fixed rate over a fixed term. In Switzerland, medium-term notes are issued with terms of between 1 and 10 years. In addition to standard medium-term notes in Swiss francs, some Swiss banks also offer euro-denominated medium-term notes.

Medium-term notes are securities and Swiss medium-term notes are primarily issued in book for rather than as physical certificates. As such, a custody account is required for the safekeeping of medium-term notes.

Swiss fixed deposits are very similar to medium-term notes in that they pay fixed interest over fixed terms. Both fixed deposits and medium-term notes issued by banks are covered by the Swiss bank depositor protection scheme against bank failures. The only significant difference between fixed deposits and medium-term notes is that fixed deposits are bank accounts (like private accounts and savings accounts), while medium-term notes are securities (like bonds and shares).

Fixed deposits do not require safekeeping services from a custodian bank, which works out cheaper for banks in comparison to medium-term notes.

Another possible advantage of fixed deposits is that it is technically possible to open accounts with custom terms. For example, a fixed deposit could theoretically have a fixed investment term of 3 years, 3 months and 2 days. The UBS time deposit account is one example of a flexible fixed deposit solution. Medium-term notes, on the other hand, are standardized securities with standardized investment terms.

Many banks charge custodial fees to hold medium-term notes. Typically, costs range between 0.05% and 0.11% of the principal. Some banks have minimum custodial fees which apply to s. Some banks require that you hold a private account or savings account with them in order to buy their medium-term notes. In the case of private accounts, the basic account fees must be taken into account.

You do not pay custodial fees for fixed deposits, but fixed deposit accounts may have fees and charges. There are also fixed deposits which do not have any fees or charges attached, such as the UBS time deposit account.

Some banks offer both medium-term notes and fixed deposits. Raiffeisen Bank is one example.

More on this topic:
Interactive fixed deposit and medium-term note comparison (CHF and EUR)

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