Time Deposit

What is a period deposit?

A period deposit is a bank deposit that has a fixed term and interest rate. The funds in this account can't be removed for a specific term, except if a penalty is paid.

More profound definition

A period deposit, likewise alluded to as term deposit, is an interest-bearing bank account with a fixed term. It allows depositors to develop their money with higher interest rates compared to an ordinary savings account.
At the point when the term is finished, depositors can pull out their money or it tends to be reestablished and held for another term. While funds can be removed from a period deposit without prior notice, there are ordinarily punishments for early withdrawals. The amount of penalty is subject to the total term of the time deposit and the issuer.
To try not to bring about punishments, depositors need to request and schedule withdrawals well in advance. Regularly, the waiting period between a request and the genuine implementation of the withdrawal is 30 calendar days.
Banks and other financial institutions utilize the funds in the time deposit account to give loans and other financial products to qualified people or organizations. Banks create a gain by lending the funds held in the time deposit account at rates higher than that being given to the holder of the time deposit account.
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Time deposit model

In the U.S., one of the most common instances of time deposit are CDs. For instance, Mario Lopez purchases a $5,000 CD at a fixed interest rate of 4 percent, with maturity in three years.
Following one year, the amount of his deposit would become $5,200 and the following year, it would increase to $5,408. Toward the finish of the term, the amount of money that Mario can pull out is $5,624.32.
In the event that Mario chooses to pull out his money before the maturity date, he will cause a penalty. Accordingly, toward the finish of the subsequent year, when the amount of the CD will be $5,408, Mario will be charged 3/12 (25 percent) of the annual interest earned. Rather than getting $5,408 in year two, he will receive $5,356.

Features

• Time deposits are an incredibly safe investment yet they have a low rate of return.
• Commonly, the more drawn out the term, the higher the interest rate that the depositor receives.
• A period deposit is an interest-bearing bank account that has a date of maturity, like a certificate of deposit (CD).
• The money in a period deposit must be held for the fixed term to receive the interest in full.