A Time Deposit requires the placement of cash in a savings account at a fixed rate of interest for a certain term or time period. Funds generally cannot be withdrawn from a Time Deposit prior to the end of its term without incurring a penalty.
Time Deposits are used around the world by consumers and businesses to save money for use in the future. Although Time Deposit is the common term used for such accounts in the United States, they are also known as Term Deposits in Canada, Australia and New Zealand, as Bonds in the Britain and as Fixed Deposits in countries like India. Financial institutions offering Time Deposits to retail clients are usually required to follow the applicable banking regulations in the country(s) in which they operate.
Time Deposits can be placed with a retail financial institution like a bank or credit union, and the risk involved in doing so is quite low if the funds are deposited with a member of a deposit insurance organization like the Federal Deposit Insurance Corporation or FDIC in the United States.
In the United States, funds deposited in Time Deposits are protected up to a certain amount by the Federal Deposit Insurance Corporation or FDIC when the Time Deposit is made with a financial institution that is also an FDIC member.
A variety of Time Deposit maturity dates ranging from one month to several years are available from financial institutions. Also, because of the requirement to leave Time Deposit funds alone for a period of time or pay a penalty, Time Deposits tend to pay out a higher rate of interest than normal savings accounts. Nevertheless, this return is usually considerably less than can be obtained by investing in riskier products like corporation stocks or bonds.