What is a Time Deposit?

The time deposit is a common form of savings that place restrictions on when a depositor can withdraw funds from the investment. The two most common examples of it are the savings account and the Certificate of Deposit. A financial institution such as a bank, credit union, or a savings and loan institution usually holds the time deposit.

With a time deposit, there is usually one of two provisions that govern the structure of the savings strategy. First, the account may be set with a fixed term that does not allow the depositor to withdraw any funds until a certain amount of time has passed. This time frame generally coincides with the schedule for applying interest to the balance maintained within the account. If national banking regulations governing the time deposit allow for emergency withdrawal of funds from a fixed term account, it is often still possible for the financial institution to impose sizable penalties.

The second common approach to a time deposit is more liberal in terms of withdrawing funds. However, the withdrawal usually has to be requested and scheduled well in advance in order to avoid incurring any type of penalties. A common waiting period between a request for withdrawal and the actual execution of the withdrawal is thirty calendar days. However, this waiting period varies somewhat from country to country.

Use of this type of savings is to the benefit of the depositor. By placing restrictions on access to the funds in the account, it is less likely that the bank customer will constantly be drawing small amounts out of savings accounts or CDs. This means the CD will reach full maturity and generate more interest income for the depositor. In like manner, greater financial benefit will be derived from the savings account, as there will be a larger balance used to calculate interest that is due the depositor. For this reason, banks and other financial institutions often recommend a time deposit approach.