Deposit or bond: not the same thing at a similar yield

At a comparable headline yield a deposit and a bond look interchangeable. They are not.

What they share

Both offer a nominal return known in advance and both are exposed to inflation: Real return: how much actually remained.

What sets a deposit apart

The principal does not fluctuate — the balance in the account does not depend on market conditions. Early withdrawal usually costs the interest but not the principal.

It is protected by the insurance scheme up to RUB 1.4m per depositor per bank.

What sets a bond apart

The price changes every day because the instrument trades. It can be sold at any moment — but at the market price, not at face value.

{{figure:bond-price-vs-rate|caption=While rates rise, the price of an already issued bond falls — and that includes yours}}

There is no insurance. There is the issuer's credit risk, and it differs between a government and a corporate issue: OFZ and corporate bonds: what the premium pays for.

Where the difference becomes decisive

When rates rise. A depositor simply waits out the term and reopens at the new rate. A bondholder sees the price fall — and if the bond has to be sold now, that fall becomes a loss. Held to maturity, the face value comes back and the fall turns out to have been on paper.

Taxes

Income from both instruments is taxed at 13% within the annual threshold. On bonds bought inside an individual investment account the tax can be avoided altogether — see The third-generation IIA: what it gives and what it restricts.