Differences between deposits and investment funds

Bank deposits and investment funds are two financial products you can invest your money in, but they have different characteristics.

Term deposits are bank products meant for saving, where customers place their money with a bank for an undefined period of time in exchange for the delivery of their deposited amount plus the agreed interest at the end of that term.

Investment funds are collective investment undertakings made up of the capital of many investors, which a management company invests in various financial products. The income from this investment is shared between the investors (shareholders or unitholders) on the basis of their interest in the fund.

From these definitions, we can infer the key differences between deposits and investment funds:

Return and risk

With bank deposits, customers know exactly the return they will be receiving from their capital, since the interest rate is agreed between the customers and the bank. In the event of insolvency, the Deposit Guarantee Fund covers the capital deposited with Spanish banks, up to €100,000 per customer and bank.

Investment funds do not offer fixed return. Instead, the income from your investment will depend on the performance of the financial assets that the fund's capital is invested in. Recovering the investment is not a guarantee.


EAs for liquidity, term deposits have a maturity date. As such, the deposited money cannot be withdrawn before this date, unless you pay a penalty or a fee for early cancellation.

In general, investment funds offer complete liquidity: you can sell your interests (redemption) at any time, since their net asset value (the price of each piece of interest) is calculated on a daily basis. Exceptionally, some funds with special characteristics (such as hedge funds) may set minimum lock-in periods before you can redeem the funds. Other funds may charge a redemption fee if you sell your interests outside certain periods. And others only allow you to redeem your investments within specific liquidity windows.


As regards taxation, the interest earned on term deposits is taxed in your tax return on being received. This interest is income from investment integrated into the savings' taxable base.

On the other hand, the money you allocate to an investment fund is not taxed until you withdraw it from the fund. Switches between funds are not taxed even if you profit from them. Only when investments are redeemed do you need to pay for the (positive or negative) gains, considered capital gains or losses and integrated into the savings instrument's taxable base in your tax return.

If you are interested, you can find out more information about investment funds on our website.

Find out more about investment funds with our financial training videos or listen to the episode about the advantages of investing in funds on our podcast "Santander AM Aprendiendo a Invertir".


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