Time deposit

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A time deposit or term deposit (also known as a certificate of deposit in the United States) is a deposit with a specified period of maturity and earns interest.[1] It is a money deposit at a banking institution that cannot be withdrawn for a specific term or period of time (unless a penalty is paid).[citation needed] When the term is over it can be withdrawn or it can be held for another term. Generally speaking, the longer the term the better the yield on the money; in its strict sense, certificate deposit is different from that of time deposit in terms of its negotiability: CDs are negotiable and can be rediscounted when the holder needs some liquidity, while time deposits must be kept until maturity.

The opposite, sometimes known as a sight deposit or "on call" deposit, can be withdrawn at any time, without any notice or penalty: e.g., money deposited in a checking account in a bank.

The rate of return is higher than for savings accounts because the requirement that the deposit be held for a prespecified term gives the bank the ability to invest it in a higher-gain financial product class. However, the return on a time deposit is generally lower than the long-term average of that of investments in riskier products like stocks or bonds, some banks offer market-linked time deposit accounts which offer potentially higher returns while guaranteeing principal.

A time deposit is an interest-bearing bank deposit that has a specified date of maturity. A deposit of funds in a savings institution is made under an agreement stipulating that (a) the funds must be kept on deposit for a stated period of time, or (b) the institution may require a minimum period of notification before a withdrawal is made.

"Small" time deposits are defined in the U.S. as those under $100,000, while "large" ones are $100,000 or greater in size. The term "jumbo CD" is commonly used in the United States to refer to large time deposits.

In the U.S., banks are not subject to a reserve requirement against their time deposit holdings.

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References[edit]

  1. ^ root (2003-11-24). "Time Deposit". Investopedia. Retrieved 2016-11-01.