What is a Time Deposit?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 29 August 2019
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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.


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Post 8

@Ted41 - I see what you're saying. However, I actually like time deposit accounts, because I'm not a very disciplined saver. If I want to save money, I need to put it somewhere where I can't access it for impulse buys. So time deposit accounts are perfect for me.

Post 7

I personally hate the idea of time deposits, especially for things like retirement accounts. Who is the bank to tell me when I can and cannot take my own money out of my account?

I know sometimes you can get a higher interest rate with a time deposit account, but I'd rather be able to access my money at any time. All those bank restrictions are ridiculous.

Post 6
@dautsun - You make a good point about CDs and interest rates. However, it can work against you too. If you get, say, a two year CD at a certain interest rate, you are locked into the rate. That's good if the rate goes lower during the two years. But, if the rates go up, you're out of luck because you're locked in for two years.

So time deposits aren't always the best thing.

Post 5

I think it's good to have savings in both regular savings accounts and a time deposit account. You should have emergency money in a regular savings account you can access quickly, and then long term savings in a time deposit account.

As the article said, time deposit accounts have a lot of advantages because you can't get to the money as easily. Another advantage is that the interesting rate on the time deposit account is usually a little bit higher. Also, you can lock in the rate on things like a Certificate of Deposit, because usually you have them for a specific amount of time.

Post 4

What is a time deposit and lending system? What are the uses for that?

Post 2

All these questions would make great wiseGEEK articles. Please consider submitting them using the "Suggest a Topic" option located in the wiseGEEK features drag-down menu at the top of the page.

Post 1

What is the difference between fixed deposit and time deposit? Are they same?

CD is a fixed deposit or time deposit?

What is fixed deposit type "TERM"?

What is the difference between "TERM" and "CD"?

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