What Is A Time Deposit?

A time deposit is an interest-bearing deposit in a bank which has a specified date of maturity just as a savings account or a certificate of deposit. The account holder is required to leave the funds in the account for a fixed term apart from giving an understanding that he or she is willing only to make a withdrawal after intimating the bank.

This is a good option for many people who may have some extra cash in their possession and may not have any intention of leaving the extra money lying around at home. People can deposit the money in a bank by opening a time deposit for a specified period because it will also give them an opportunity to earn some interest on the deposit. Perhaps the only handicap with such accounts is the fact that people will not be able to withdraw funds in an emergency unless they are prepared to pay penalties for the withdrawal.

Time Deposit Explained

When people open a time deposit account and make an investment they are exploiting banks the funds needed by them to lend money to other individuals. The banks make a profit by lending the money held in the time deposit account by charging a higher rate of interest than the interest being paid to the depositor.

Time deposits are investment mechanisms with low risk and provide a specified interest rate for leaving the funds with the bank for a stipulated period of time. Certain specific conditions are applied for the withdrawal of funds including the imposition of penalties when the depositor decides to make an early withdrawal. People who are depositing the money are sacrificing their freedom to make early withdrawals unless they are penalized for it by the banks and it is for this reason that banks are prepared to offer favorable interest rates as compared to the basic savings accounts.

Depositors are required to give the bank 30 days advance notice before withdrawing funds from a savings account. Passbook accounts are generally considered as funds which are readily available and give the account holder the opportunity to make withdrawals without the necessity of intimating the bank.

Certificates of deposit which are issued for a specific term which can be found a minimum of 30 days to five years also have the facility to withdraw funds on demand and without a notice. However, banks impose penalties for early withdrawal from CDs.

Interest Rates and Maturity

Banks and financial institutions have the option of discussing the maturity term which is the length of the deposit which is requested by the customer but the minimum term is for 30 days and interest is paid even for this period. The depositor is free to withdraw the money when the maturity period has been reached. The bank will impose no penalties on the withdrawal while also giving the depositor an opportunity to renew the time deposit to be held for a further term.

People who have no intention of using the money line with them in the short term will be happy to know the longer they leave the money with the bank in a time deposit account they will have access to higher interest rates. A time deposit account for one year will offer just 1.10% interest while a deposit of the same type for five years will give them 1.75%. People can also take advantage of the fact that banks offer higher interest rates than the figures mentioned when their customers are prepared to make larger deposits.

A time deposit account is an excellent method for people who have some extra cash lying around along with concerns about how they can not just keep the money safe but also earn some interest on it. They just need to approach a bank of their choice and request for a time deposit after keeping in mind the little drawbacks they will have when trying to withdraw the money in a hurry. In times when the economy is going to a difficult situation, a time deposit is perhaps one of the methods which can be used by people to get some interest on idle money which is lying around.