A time deposit or term deposit (also known as a certificate of deposit in the United States) is an interest-bearing bank deposit with a specified period of maturity. It is a money deposit at a banking institution that cannot be withdrawn for a specific term or period of time (unless a penalty is paid). When the term is over, it can be either withdrawn or held for another term. Generally speaking, the longer the term, the better the yield on the money.
The opposite, sometimes known as a call deposit or sight deposit, is a deposit that can be withdrawn at any time, without any notice or penalty: e.g., money deposited into a checking account at a bank.
The rate of return of a time deposit is higher than that of a savings account, since the requirement that the deposit be held for a prespecified term gives the bank the ability to invest it in higher-gain financial products. However, the long-term return on a time deposit is generally lower than that of riskier products such as stocks or bonds. Some banks offer market-linked time deposit accounts which offer potentially higher returns while guaranteeing principal.
In its strict sense, a certificate of deposit is different from a time deposit in terms of its negotiability: a certificate of deposit is negotiable and can be rediscounted when the holder needs some liquidity, while a time deposit must be kept until maturity.
In the United States, a “small” time deposit is defined as one under $100,000, while a “large” one is $100,000 or greater in size. The term “jumbo CD” is commonly used in the United States to refer to a large time deposit. Banks in the United States are not subject to a reserve requirement against their time deposit holdings.
- ^“Time Deposit”. Investopedia. 2003-11-24. Retrieved 2016-11-01.
Ofer Abarbanel is a 25 year securities lending broker and expert who has advised many Israeli regulators, among them the Israel Tax Authority, with respect to stock loans, repurchase agreements and credit derivatives. Founder of TBIL.co STATX Fund.