Term Deposit

A term deposit is a sum of money placed with a bank or other financial institution for a fixed period, known as the term, in exchange for a set interest rate agreed at the outset. The funds are generally not accessible without penalty until the term ends, known as maturity, at which point the depositor can withdraw the principal and accumulated interest or choose to roll it into a new term deposit for a further period.

Term deposits are also widely known as certificates of deposit in the United States and as time deposits in other English-speaking markets, all describing essentially the same underlying product with minor naming and structural differences from one country to the next. Because the bank can rely on the funds staying in place for a known period, term deposits typically offer a higher interest rate than an equivalent ordinary savings account that allows withdrawals at any time.

You agree to leave a set amount of money untouched with the bank for a fixed period, and in exchange the bank pays you a better interest rate than it would on money you could withdraw at any time without any notice at all.

A term deposit has a fixed term, ranging from as short as a month to several years, a fixed interest rate known in advance and generally unaffected by rate changes elsewhere in the market during that term, and an early withdrawal penalty, usually a reduction in interest earned, applied if the depositor needs to access funds before maturity.

Term deposits suit savers who do not need immediate access to a particular sum and want a predictable, low-risk return, often as part of a broader strategy that also includes more liquid accounts for day-to-day spending needs. Because the rate is locked in for the full term, a term deposit can become relatively less attractive if market interest rates rise significantly during that period, since newer term deposits opened at that later point would pay a higher rate than the one already locked in.

Savers who want both the higher yield of a term deposit and reasonably regular access to at least part of their money often use a strategy called laddering, spreading funds across several term deposits with staggered maturity dates rather than locking the entire sum into a single term. This approach means a portion of the total savings becomes available at regular intervals, giving the saver periodic opportunities to withdraw funds if needed or reinvest at whatever rate is then on offer, without ever having the full amount completely inaccessible at once.

In most countries, term deposits held at a licensed bank are covered by a government deposit insurance scheme up to a specified limit, meaning the funds remain protected even if the bank itself were to fail, which is a significant part of why term deposits are generally considered a very low-risk place to hold savings. Savers with amounts well above the insured limit sometimes spread term deposits across multiple institutions specifically to keep each individual holding within the protected threshold at every bank involved.

Because term deposit rates can vary meaningfully between banks for what is otherwise an identical, low-risk product, savers are generally well advised to compare rates across several institutions before committing funds, rather than automatically placing a term deposit with their existing everyday bank purely out of convenience. Online comparison tools and dedicated savings marketplaces have made this kind of rate comparison considerably easier than it once was, often revealing a meaningful difference between the rate offered by a saver's main bank and the best available rate elsewhere in the market.

Interest earned on a term deposit is generally treated as taxable income in most countries, meaning the bank may report the interest paid directly to the tax authority and, in some jurisdictions, withhold tax automatically before crediting the interest to the depositor's account. Savers holding term deposits inside a tax-advantaged account, such as a tax-free savings account where one is available, can avoid this ongoing tax liability entirely, which is one reason some savers deliberately hold their term deposits within such a wrapper rather than in an ordinary taxable account.