Loading the player...

What is a 'Time Deposit'

A time deposit is an interest-bearing bank deposit account that has a specified date of maturity, such as a savings account or certificate of deposit (CD). The funds in these accounts must be held for a fixed term and include the understanding that the depositor can make a withdrawal only by giving notice.

BREAKING DOWN 'Time Deposit'

A bank is authorized to require depositors to give 30 days' notice before withdrawing funds from a savings account; however, passbook accounts are typically considered readily available funds and account holders can make withdrawals without giving advance notice. Certificates of deposit are issued for a specified term, typically from 30 days (the minimum) up to five years. Although funds can be withdrawn from CDs without notice (on demand), there are penalties for early withdrawal.

Time deposits are lower risk investment mechanisms that provide a specified interest rate in return for leaving funds deposited for a specified amount of time. There are specific conditions surrounding the ability to withdraw the funds, including the use of penalties when the depositor makes an early withdrawal. It is due to this sacrifice of liquidity that banks offer favorable interest rates compared to most basic savings accounts.

Purpose of Time Deposit Accounts

Time deposit accounts provide banks the funds necessary to lend money to other individuals or entities. The bank makes a profit by lending the money held in the time deposit account to those seeking funds charging a rate higher than that being provided to the time deposit account holder.

Maturity and Interest Rates

Banks and other financial institutions can negotiate any maturity term that a customer requests, as long as the term is a minimum of 30 days and interest is paid. Once maturity is reached, the funds can be withdrawn without penalty, or it can be renewed and held for an additional term. In most cases, the longer the term, the higher the interest rate will be. For example, a one-year certificate of deposit may offer a 1.10% APY, while a five-year CD for the same amount might provide a 1.75% APY. In addition, larger CDs (those with a higher deposit) generally offer more favorable interest rates.

Maturity and Interest Rates

Banks and other financial institutions can negotiate any maturity term (the length of the deposit) that a customer requests, as long as the term is a minimum of 30 days and interest is paid. Once maturity is reached, the funds can be withdrawn without penalty, or account can be renewed and held for an additional term. In most cases, the longer the term, the higher the interest rate is. For example, a one-year CD may offer a 1.10% APY, while a five-year CD for the same amount might provide a 1.75% APY. In addition, larger CDs (those with a higher deposit) generally offer more favorable interest rates.

RELATED TERMS
  1. Bank Deposits

    Money placed into a banking institution for safekeeping. Bank ...
  2. Term Deposit

    A deposit held at a financial institution that has a fixed term, ...
  3. Call Deposit Account

    A bank account for investment funds that offers the advantages ...
  4. Deposit

    1. A transaction involving a transfer of funds to another party ...
  5. Demand Deposit

    Funds held in an account from which deposited funds can be withdrawn ...
  6. Deposit Interest Rate

    The interest rate paid by financial institutions to deposit account ...
Related Articles
  1. Investing

    How Time Deposits Work

    A time deposit is an interest-bearing bank deposit that has a specific maturity date.
  2. Investing

    Explaining Term Deposits

    A term deposit (more often called a certificate of deposit or CD) is a deposit account that is made for a specific period of time.
  3. Investing

    What is a Demand Deposit?

    A demand deposit is any type of account where the money in the account may be withdrawn at any time without prior notice to the financial institution.
  4. Personal Finance

    Where To Put Your Cash: Call Deposit Vs Time Deposit Accounts

    Time deposit accounts and call deposit accounts allow customers to earn higher interest in exchange for less access to their cash.
  5. Personal Finance

    Get the Best Savings Interest Rates For You

    How do you choose between market deposit accounts, CDs and traditional savings accounts?
  6. Investing

    Certificate of Deposit (CD)

    A certificate of deposit, or CD, is a common financial product sold by banks, thrift organizations and credit unions. This type of product is often called a time deposit. CDs are insured up to ...
  7. Personal Finance

    Find the Best Savings Account Rates

    You know how to spot the highest interest rate, but how do you really get the best deal on savings accounts?
  8. Personal Finance

    Understanding Savings Accounts

    A deposit account held at a bank or other financial institution that provides principal security and a modest interest rate.
  9. Personal Finance

    Handling High-Yield Savings Accounts

    Is this the savings route for you? Read on to find out what these accounts have to offer.
RELATED FAQS
  1. What is the difference between a demand deposit and a term deposit?

    Understand the meaning of demand deposits and term deposits, and learn about the major differences between these two types ... Read Answer >>
  2. For what types of accounts are demand deposits available?

    Learn about the different types of accounts designated as demand deposit accounts, such as savings accounts and money market ... Read Answer >>
  3. Can certificates of deposit (CDs) lose value?

    CDs are FDIC insured, so they do not lose face value, though broker-issued CD accounts do carry risks. Read Answer >>
  4. How safe an investment is a certificate of deposit?

    Discover certificates of deposit, their basic makeup and numerous variations, and understand why they are some of the safest ... Read Answer >>
Hot Definitions
  1. Federal Direct Loan Program

    A program that provides low-interest loans to postsecondary students and their parents. The William D. Ford Federal Direct ...
  2. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  3. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  4. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  5. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  6. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
Trading Center