What Is a Time Deposit?

What Is a Time Deposit?

By Charles Joseph | Editor, Financial Affairs
Reviewed by Corey Michael | Senior Financial Analyst

A time deposit is a type of bank account that holds a certain amount of money for a specified period. The funds in this type of account cannot be withdrawn for a set period without incurring penalties. The period can range from a few months to a few years. In return for leaving the money untouched, the bank gives a higher interest rate compared to regular savings accounts. It is also known as term deposits in some parts of the world.

Related Questions

1. How does a time deposit work?

A time deposit works by agreeing to leave a certain amount of money in a bank for a specified period of time. During this time, the money will earn interest. However, if you withdraw the money before the end of the period, you will usually have to pay a penalty.

2. What are the benefits of a time deposit?

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Time deposits offer a higher interest rate than regular savings accounts. This makes them a good option for people who are saving for a specific goal and can leave their money untouched for a period of time. They also offer a guaranteed return, as the interest rate is fixed for the term of the deposit.

3. What is the difference between a time deposit and a demand deposit?

A time deposit is a deposit that cannot be withdrawn without penalty for a specific period of time. A demand deposit, on the other hand, is a deposit that can be withdrawn at any time, like a regular checking or savings account. Demand deposits usually offer lower interest rates than time deposits.

4. Can time deposit lose money?

No, time deposits are considered a safe investment. The principal amount is guaranteed by the bank and isn’t affected by market fluctuations. However, the bank can impose a penalty if the deposit is withdrawn before the maturity date.

5. What happens to a time deposit after maturity?

When a time deposit reaches maturity, you have several options. You can withdraw the money, along with the interest it has earned, or you can roll it over for another term. If you don’t touch the deposit, many banks will automatically roll it into a new term deposit, often at the current rate of interest.