Q&A with Apricot | What are the key differences between Bonds and Bank deposits?

If you’re looking for ways to preserve your money’s value and earn some extra income, bank deposits and bonds are popular options. But what’s the difference between them? Let’s break it down.

Both bonds and bank deposits are fixed-income investments, meaning they offer relatively stable returns. They’re good choices to add some balance to your investment portfolio. Key differences include:

 1. Liquidity

• Bank Deposits: In the case of a bank deposit, you give your money to the bank for a fixed period of time. For example, if you signed a deposit agreement for a period of 1 year, and after 3 months you need to withdraw your money, you will have to terminate the deposit agreement and, as a result, you may receive only the principal amount of the deposit (unless otherwise stipulated in the deposit agreement).
• Bonds: In the case of bonds, they circulate in the secondary market. If you need the money from a 1-year bond after 3 months, you can sell the bonds and get the money you invested and the accumulated coupon income (“interest” provided by the bond).

 2. Taxation

• Income from deposits: Interest you earn on bank deposits is subject to income tax.
• Bonds: Bonds often offer tax advantages. In Armenia, for example, income from certain government and international bonds may be tax-free for physical persons (individuals). Additionally, income from selling bonds or their interest payments (coupons), if listed on the Armenian Stock Exchange and with maturity of at least 2 years, is also not taxed.

 3. Fluctuations in Value

• Bank Deposits: The value of your deposit only changes if interest compounds. There are no price fluctuations.
• Bonds: Bond prices can go up or down in the market. This means potential for additional profit if you sell when the price is higher, or a loss if the price falls below what you paid. Longer-term bonds see more fluctuation (duration).

So, Which Is Right for You?

Ultimately, the best answer depends on your unique financial goals and your approach to managing funds.

Interested in adding bonds to your portfolio?

Open a brokerage account  for free and download our Apricot app from the App Store or Google Play.

It’s important to remember that investments are subject to market fluctuations and carry inherent risks. Consider your financial goals and risk tolerance before investing.

Apricot Capital is regulated by the Central bank of Armenia.

*The examples in this text are for illustrative purposes only. This does not constitute investment advice or a recommendation to buy or sell any specific investment instrument. The past performance mentioned in this text is not indicative of future results.