Time Deposit
An interest-bearing bank deposit account with a specified maturity date.
A time deposit is an interest-bearing deposit that a bank or financial institution holds for a fixed term, with the depositor only permitted to withdraw funds after giving notice. Examples of time deposits include savings accounts and certificates of deposit (CD), for which 30 days’ notice is usually required before the deposit can be withdrawn.
What makes time deposits distinctive?
Time deposits are often considered by individuals and companies to be cash or readily available funds, although they aren’t technically payable on demand. If the funds are withdrawn before the specified maturity date, the bank may impose a penalty. The specified term for which CDs are issued can range from as short as 30 days to as long as five years.Practical Application Example
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A bank or financial institution can negotiate any maturity term a customer requests, provided that it is at least 30 days. A longer term generally means a higher interest rate, so while a one-year CD may offer a 1.10% annual percentage yield (APY), a five-year CD for the same amount may give you an APY of 1.75%. Larger CDs – i.e. those with higher deposits – are also associated with more favourable interest rates. ”
