A term deposit is a fixed-term investment that involves depositing money into an account at a financial institution. It pays a fixed interest rate and is generally risk-free. The length of time you can keep your money in a term deposit can range from one month to five years. The maturity of short-term deposits ranges from one to twelve months, and the holding of long-term deposits will be from one to ten years.
Customers who choose a term deposit account deposit a fixed amount of money into the account for a specific period of time. In a recurring deposit scheme, the customer can deposit a fixed amount at regular intervals during the maturity period. Term deposits and GICs tend to pay higher interest rates than savings accounts when you leave money for the entire fixed term. Some examples of term deposits include certificates of deposit (CDs) and term deposits.
A certificate of deposit (CD) is the best known example. The money must remain in the account for a fixed period of time to obtain the indicated interest rate. A customer can earn a slightly higher interest rate with a fixed-term deposit account than would be available in a standard savings account or an interest-bearing checking account. The interest rate on a term deposit may vary depending on attributes such as the bank, the maturity period and the amount invested.
In a low interest rate environment, demand for term deposits may decline, as investors often find alternative investment vehicles that pay a higher rate. When a term deposit approaches its due date, the bank that holds it normally sends a letter notifying the customer of the next due date. The interest you'll earn on a term deposit is determined by these factors, taking into account how much you invest and how much time you invest. Unlike other investment options, such as stocks or stocks, a term deposit is a simple and risk-free way to generate high interest rates on your savings.
This means that once you have deposited your money into a term deposit, you won't be able to access it until the term ends.
