Deposits

The money in a deposit is released by the morning of the deposit’s expiry date.

The interest amount on the demand deposit is calculated daily on the current account balance and shall be paid out to the account at the beginning of the following month. The interest rates of demand deposits are available at lhv.ee/en/price-list

You will find the interest rates for term deposits here: lhv.ee/hoius

You must have an account in LHV Bank in order to open a deposit. Once you have an account, you can open a term deposit in one of our offices or in the internet bank.

According to the conditions of the term deposit (4.4 and 4.5), the bank’s consent is required for early termination of the contract. Under normal circumstances, we will favour the customer’s wish and allow early termination of the agreement. The terms and conditions also outline a possible expense that we may, but do not have to, ask the customer to compensate for the premature termination of the deposit. Exact costs can be calculated at the time the deposit is terminated. Here are examples of how the expenses are calculated:

• Example 1. A fixed-term deposit was concluded for one year in the amount of 100,000 euros with an interest rate of 2%. The customer wants to terminate the fixed-term deposit after six months. We accept the cancellation but have to replace the deposit with a new deposit, as per the contract, the deposit had to be paid out only after one year. At the time of termination, the cost of the replacement deposit for us is 3%. Therefore, the customer has to pay the cancellation costs for six months (i.e. the term that remained from the moment of cancellation to the originally agreed due date). According to the fixed-term deposit agreement, we had to pay the client an interest rate of 2%. If the interest of the replacement deposit is 3%, the customer has to pay the difference in the interest of 1% for the 6-month period. The cost is 100,000 euros x 1% / 360 days * 180 days = 500 euros.

• Example 2. A fixed-term deposit was concluded for one year in the amount of 100,000 euros and with an interest rate of 2%. The customer wants to terminate the fixed-term deposit after six months. We accept the cancellation but have to replace the deposit with a new deposit, as per the contract, the deposit had to be paid out only after one year. At the time of termination, the cost of the replacement deposit for us is 2%, i.e. equal to the interest agreed in the contract. The customer has to pay the cancellation costs for six months, but since the interest rate difference is 0%, the customer will not incur fees related to the termination.

The easiest way to cancel a fixed-term deposit is in the internet bank. You can also contact your customer manager or send a request to info@lhv.ee. If the deposit is terminated prematurely, you will lose the earned interest and the deposited money will be released on the same day.

Starting from 2018, the state will tax the interest earned on the deposits of private individuals, which are paid out in 2018 or later.

If you deposit your money in an investment account and you wish to defer the payment of income tax, please inform the bank of it via the internet bank as soon as possible. Interest rates are shown without considering the taxes.

Income tax shall only be paid on deposit interest by those private individuals, who are Estonian tax residents and who have not informed the bank that their account, in which the interest is received, is an investment account.

Estonian tax resident is a person, whose permanent residence is in Estonia or who has stayed in Estonia for at least 183 days in a year. For tax purposes the residence can be verified in the internet bank (“Information and settings” → “Details”).

An investment account enables an active investor to postpone the income tax liability and reinvest the earned return without paying the income tax in between.

It is wise to carefully consider which accounts should be classified as investment accounts. Most definitely it is not reasonable to do it with your daily current account, since declaration of the same at a later date will be extremely complicated.

The choice of investment account can also be made in the internet bank. “Information and settings” ➞ “Accounts and limits” → “Accounts”. Choose the account and save the selection. Later you should also declare this account on your income tax return as an investment account.

The amendment that entered into force at the beginning of 2018 concerns both the demand deposit as well as the term deposit interest. Whereas it doesn’t matter when the deposit agreement was concluded or for which period the interest is paid, since the tax system is so-called cash-based. This means that the time when the interest is paid to the client is what matters.

You do not have to declare or pay the interest yourself. The bank shall withhold income tax and declare and pay it on your behalf.

The clients, whose deposit interest is subject to income tax, will from now on see two entries in their account statement: interest and income tax payment. Calculation of income tax follows the traditional rounding-off rules.

Example: if you took out a 12-month (365-day) deposit contract in the amount of 500 € with an interest rate of 0.30%, then at the end of the deposit period the bank will transfer the interest to your account in the amount of 1.52 € and withhold 30 cents as income tax.

All interest rates displayed by the bank are gross amounts. This means that no taxes have been deducted from the interest rates.

Some clients (such as enterprises, non-residents, users of investment account system) do not have to pay income tax on deposit interest. This is why it is not reasonable, given the complicated tax system, to show interest rates together with taxes and without them.

The data of the interest earned on bank deposits will be automatically shown on your pre-populated income tax return starting from 2019.

If you choose a deposit with automatic extension (together with interest), it will not defer the payment of income tax. To be specific, upon the expiry of your deposit, we will transfer the principal amount of the deposit to your account together with interest, withhold income tax and open a new deposit.