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Atime deposit orterm deposit (also known as acertificate of deposit in theUnited States, and as aguaranteed investment certificate inCanada) is adeposit in afinancial institution with a specificmaturity date or a period to maturity, commonly referred to as its "term". Time deposits differ fromat call deposits, such assavings orchecking accounts, which can be withdrawn at any time, without any notice or penalty. Deposits that require notice of withdrawal to be given are effectively time deposits, though they do not have a fixed maturity date.
Unlike a certificate of deposit andbonds, a time deposit is generallynot negotiable; it is not transferable by the depositor, so that depositors need to deal with the financial institution when they need to prematurely cash out of the deposit.
Time deposits enable the bank to invest the funds in higher-earning financial products. In some countries, including the United States, time deposits are not subject to the banks’reserve requirements, on the basis that the funds cannot be withdrawn at short notice. In some countries, time deposits are guaranteed by the government or protected bydeposit insurance.
Time deposits normally earninterest, which is normally fixed for the duration of the term and payable upon maturity, though some may be paid periodically during the term, especially with longer-term deposits. Generally, the longer the term and the larger the deposit amount the higher the interest rate that will be offered.[1]
The interest paid on a time deposit tends to be higher than on an at-call savings account, but tends to be lower than that of riskier products such as stocks or bonds. Some banks offermarket-linked time deposit accounts which offer potentially higher returns while guaranteeing principal.
At maturity, the principal can be either paid back to the depositor (usually by a deposit into a bank account designated by the depositor) or rolled over for another term. Interest may be paid into the same account as the principal or to another bank account or rolled over with the principal to the next term.
The money deposited normally can be withdrawn before maturity, but a significant penalty will normally be payable.
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